Now, let’s move on to the Offer in Compromise. An offer is when a taxpayer proposes to settle debt for less than the total owed. IRS will normally accept an offer if full payment is unlikely and the amount proposed reflects collection potential. It’s a viable option for those who can’t full pay without a hardship situation, but it’s not for everyone.
Getting an Offer in Compromise in Hardship Situation
The main option in this type of situation is an offer in compromise, a legal way to reduce tax debt. An offer in compromise (OIC) is a way of settling your tax debt by negotiating directly with the Internal Revenue Service (IRS). When you submit an offer in compromise, you send an offer to the IRS stating how much you are able to pay.
What is an IRS Offer in Compromise in Hardship Situation?
Each offer is based on its own merit, considering the taxpayer’s ability to pay, equity and assets, and special circumstances like hardship. The taxpayer’s ability will be based on a special Collection Information Statement designed for offers. The Form 433-A (OIC) is for individuals and self-employed individuals.
Offer in Compromise Form 433
The Form 433-B (OIC) is for businesses. The forms have sections to help calculate an offer. The best place to start and see if an Offer in Compromise makes sense is at our website, IRS.gov. A search for the word “offer” will lead you to the Offer in Compromise page; it contains information and the Pre-Qualifier tool.
What is an Offer in Compromise Pre-Qualifer?
The Pre-Qualifier tool helps determine if an offer is a good alternative and takes you through a simplified version of the application process. If the information input shows a good candidate, the tool provides a preliminary offer amount and directs you to the Form 656-B, a booklet of forms and instructions which is submitted for final investigation and determination to the Internal Revenue Service.
Qualifying for Offer in Compromise
Remember, the pre-qualifier tool isn’t an online application or guaranteed acceptance. It’s meant as a guide. The decision on the offer will be based on the taxpayer’s written application.
Offer in Compromise Pre-Qualifier
Also, the Pre-Qualifier tool can’t evaluate unusual circumstances. For example, let’s say an individual has high medical expenses or one of their dependents does. This may be a legitimate expense, but we’d want an examiner to evaluate it, not an online tool. With an offer, remember that all required returns must be filed, all estimated taxes for the current year must be paid, and businesses with employees must show that all federal tax deposits are current. Unless qualified for the lowincome waiver, there is a fee of $186 for an Offer in Compromise, and the initial payment for the offer should be included with offer package. Taxpayers in bankruptcy are not eligible for an Offer in Compromise.
Options for paying the Offer in Compromise
Options for paying the Offer in Compromise are basically two. The first is to pay the offer in five or fewer installments within five months or less. This option uses a 12-month future income in the acceptance calculation, and you also need to submit a 20 percent down payment with the offer application. The second option is to pay the offer within 24 months or less. We use the 24 months of future income with this calculation. This option requires the first payment to be submitted with the offer and to continue making the payments during the investigation even before the offer has been accepted.
Temporary Resolution of IRS Tax Debt
Now let’s discuss a temporary resolution, something that you may have heard IRS people refer to as currently not collectible. When our evaluation of assets shows no ability to pay, collection may be delayed until the financial condition improves. But the tax doesn’t go away, and the penalties and interest continue to accrue until the tax is paid. .
What is a Notice of Federal Tax Lien?
The Notice of Federal Tax Lien is generally filed in these situations, and future refunds will be used to offset against the debt. Also, an annual notice is sent as a reminder. If the return shows financially you’ve improved, then the case can be reactivated, cancelling the currently not collectible temporary delay. Therefore, it’s just a short-term solution, and taxpayers should focus on doing anything to reduce their debt. It’s to their advantage.
Streamlined IRS Installment Agreements
To summarize, when Streamlined Installment Agreements are not available, taxpayers are required to submit a Collection Information Statement, which Collection will review and analyze to determine a case resolution.