Offer in Compromise - IRS
Need IRS Debt Forgiveness? Consider an Offer in Compromise.
When you owe more federal income tax than you can realistically afford to pay, you may qualify for IRS debt forgiveness.
Having a creditor forgive some or even all your debt may be possible for other types of debt, like student loans or even credit card balances — although it almost always comes with negative consequences. But the IRS doesn’t typically work that way.
While IRS payment plans or installment agreements can help you pay your full tax debt over time, an Offer in Compromise (IRS Settlement) is about as close as anyone can come to total IRS debt forgiveness. The IRS will never take "zero" dollars but they will take as little as $100.
An IRS settlement is predicated on how much money and assets you have after deducting what the IRS calls "allowable expenses." Allowable expenses are your everyday living expenses. Another factor is the "Statute of Limitations." How much time does the IRS have left to collect your tax debt?
KNOW THIS: The IRS wants to do 2 things. Collect money and close cases. An Offer in Compromise accomplishes both of these goals for the IRS even if the tax settlement is only $100.
Let’s cover an Offer in Compromise so you can understand how you might be able to settle a tax debt for less than the full amount you owe
What if I can’t pay my tax debt?
If you can pay off your tax debt in a lump sum, you’ll save money in the long run. That’s because the IRS charges interest and penalties on any past-due unpaid tax until you pay in full. If you arrange for a payment plan (Installment Agreement) you will be charged interest and penalties. If you have an Offer in Compromise accepted, you will be "settled in full" at a drastically reduced amount.
Applying for an Offer in Compromise
If you have reason to believe that you could qualify for IRS debt forgiveness through an offer in compromise, you should take a look at the offer in compromise booklet and Form 656. If you feel overwhelmed or need help, consider hiring a tax professional who can walk you through the form and give you general guidance.
How the offer amount is determined
An Offer in Compromise starts with you, the taxpayer, making a valid tax settlement to the IRS using Form 656 — but you can’t just offer any amount you wish as a settlement for your tax debt.
The IRS usually expects the amount you offer to be equal to or greater than the value of your assets — real property, vehicles, and bank accounts — as well as anticipated future income minus basic living expenses (allowable expenses). The IRS terms this your “reasonable collection potential.”
You do not be "destitute" to be eligible for an Offer in Compromise. The IRS "allowable expenses" includes housing, car payment (2 if you are married), health insurance, utilities, food and clothing, alimony, child support, secured loan payments, term life insurance, etc.
In order to determine your ability to pay your outstanding tax debt, the IRS may require you to complete and submit Form 433-A. The form gathers details of a wage earner’s or self-employed person’s financial situation, including a taxpayer’s assets and expenses.
When it comes to figuring out your Offer in Compromise, there may be a lot of math involved.
The IRS wants to look at your financial picture and your ability to pay, and then they’re going to look at their ability to collect.
Don’t worry too much about getting your settlement offer exactly right. If you qualify for the Offer in Compromise program and your offer is too low, the IRS will allow you to update your offer.
THE CLIENTS OF FLAT FEE TAX RELIEF HAVE A 96% OFFER IN COMPROMISE SUCCESS RATE. THAT'S BETTER THAN "PRETTY GOOD."