How Much Should I Offer in Compromise to the IRS

Owing back taxes to the IRS is a scary, often overwhelming process. But, the good news is that it is sometimes possible to wipe your tax slate clean while getting a large discount on your tax bill at the same time. This is possible through something called “Offer in Compromise,” also referred to as OIC or offer.

The IRS began its Fresh Start Initiative Business in Compromise in 2011 to help taxpayers who were facing difficulties paying their taxes. Now, in order to help more taxpayers, the IRS has expanded the program by adopting more flexible Offer-in-Compromise terms. This expansion allows some of the most financially distressed taxpayers to clear up their tax problems and possibly even faster than in the past.

What is IRS Offer in Compromise?

An offer in compromise allows you to settle your tax debt for less than the full amount that you owe. It is essentially an offer and compromise as the name suggests because you make an offer to the IRS on what you can pay and the IRS will compromise with you. OIC is a good option if you can’t pay your full tax bill, or doing so will result in financial hardship for you. There is no cut and dry determination whether you will be approved or denied for OIC, instead, the IRS reviews each case individually and considers the following:

Ability to pay
Income
Expenses
Asset equity

The IRS generally approves an Offer in Compromise in 2020, when the amount offered represents the most they can expect to collect within a reasonable period of time.

Who is Eligible for IRS Offer in Compromise?

It’s important that you explore all other payment options before submitting an Offer in Compromise. You must also note that the Offer in Compromise program is not necessarily for everyone. To qualify for OIC consideration, you must show the IRS that you are dealing with one of the following conditions:

There is some doubt as to whether the IRS can collect the tax bill from you, now or in the future.
Due to exceptional circumstances, payment of your full tax bill would cause an economic hardship or would be unfair or even inequitable.
Offer in Compromise doubt as to liability: this is more rarely used and taxpayers who are seeking to use this must file Form 656-L. This offer is based on a claim that there is doubt as to whether the tax liability assessed is correct.
- You are not eligible for OIC if you are in an open bankruptcy proceeding.
  - Use the Offer in Compromise Pre-Qualifier to confirm your eligibility and start preparing your proposal for the IRS.

How to Submit an Offer

There are strict guidelines that must be followed in order to submit an OIC offer to the IRS. To start, you must complete IRS Form 656, Offer in Compromise and submit the $205 application fee. You may be exempt from the fee if your monthly income is below the poverty guidelines. If you do claim the poverty guideline exemption, you must submit an Application Fee Worksheet from the Form 656 booklet. As part of the OIC, you will need to provide detailed financial information to the IRS via Form 433-A for individuals or Form 433-B for businesses. If you are married and live in a community property state, the IRS may request that your Collection Information Statement include data on your spouse, even if it is you alone that owes the IRS. You need to make sure these forms are filled out correctly and accurately because they are scrutinized and examined a lot more closely than when you request to pay your taxes with an installment plan. You will also need to submit your initial payment for each Form 656 Offer in Compromise.

Select Your Payment Option

Your initial payment will vary based on your offer and the payment option you choose:

Lump Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. If your offer is accepted, written confirmation will be sent to you. Any remaining balance due on the offer is paid in five or fewer payments.
Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until your bill is paid in full.

If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the time it takes the IRS to review your offer.

How Much Should You Offer?

Here is the million dollar question: ‘How much do I offer the IRS?’ There are instructions on Form 433 to help you come up with your minimum offer amount. Essentially, according to the guidelines, your offer must equal:

The “net realizable value” of your assets.
Your excess monthly income after subtracting your monthly expenses.
Now you will multiply this amount by 12 or 24 depending on the payment period you choose, whether it’s five months or two years.

Understand the Process

While your offer is being evaluated:

Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt)
A Notice of Federal Tax Lien could be filed
Other collection activities are halted
The legal assessment and collection period is extended
Make all required payments associated with your offer
You are not obligated to make payments on an existing installment agreement
Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date

What to Do if Your Offer is Rejected

The IRS usually rejects Offers in Compromise for one of two reasons:

The offer is too low. If this is the case, the IRS will state what amount they will accept.
You are a “notorious” character. Let’s say you’ve been convicted of a serious crime.

You may appeal a rejection within 30 days using Request for Appeal of Offer in Compromise, Form 13711 (PDF).
The IRS Independent Office of Appeals provides additional assistance on appealing your rejected offer.

After you find out why your offer was rejected, you can resubmit your offer. The revenue officer or special procedures officer might then help you come up with a way to make your offer acceptable. You will not need to submit a new Form 656 if you submit your new offer within 30 days, if your financial situation has not changed and if the new offer is not largely different from the first offer. Instead, you should write a letter stating that you want to change your offer by increasing its value. If you are, however, submitting an offer that is radically different, you will need to complete a new Form 656.

Appealing a Denied Offer in Compromise

There is an option to appeal a denied offer in compromise, or you can call the person who signed the letter and try to convince them to change their mind. Often, instead of forwarding appeals to the Appeals Office, the IRS will reconsider your offer and engage in further negotiation.

To start your appeal, file IRS Form 13711, Request for Appeal of Offer in Compromise, within one month of the date you received the rejection letter. In order for your appeal to be considered, you must:

Provide all of the requested data during your offer processing
File all past tax returns
Be current on your tax payments for the current year

Offer in Compromise Statute of Limitations

Generally, the collection statute is 10 years from the date that your liability was assessed. Making an Offer in Compromise will extend the statute of limitations because the IRS will need time to review and assess your case.

Can you file an Offer in Compromise on an IRS trust fund recovery penalty?

Yes, you can negotiate a trust fund recovery penalty with an Offer in Compromise. There are a few key differences between a business Offer in Compromise and an Offer in Compromise for a trust fund recovery penalty:

In order to submit an OIC for a running business, any party must not contest the trust fund assessment.
The business is the taxpayer filing the offer for back payroll taxes.
An individual is a taxpayer that is filing an offer for the trust fund recovery penalty.
The business is trying to settle all employment taxes, which include trust fund taxes and employment taxes.
The business will try to settle for an amount at least equal to the trust fund recovery penalty, that way, no “responsible parties” will have to pay it. Instead, the business will.

How Do I Qualify For An Offer In Compromise?

You can qualify for an Offer in Compromise in three different ways.

Doubt as to Collectibility, or the IRS doesn’t think they can collect the taxes from you
Doubt as to Liability, or the IRS isn’t sure that you are responsible for the taxes
Effective Tax Administration

The Offer in Compromise pre-qualifier tool can help you know if you qualify or not.

How Do I Request An Offer In Compromise?

It’s complicated to apply for an Offer in Compromise. You’ll need to gather lots of paperwork and fill out many forms.

IRS Form 656-B, or the OIC book. This explains your situation regarding collectibility or effective tax administration. You need to fill out Form 655, 433-A (OIC), and 433-B (OIC).
Original copies of every bill, paycheck, receipt, and transaction for at least three months. The IRS wants to see everything you spend money on, including rent, gas, credit cards, food, restaurant bills, daycare, kid’s activities, clothing, and more. The IRS won’t accept copies.
If you don’t think you owe anything to the IRS at all, fill out Form 656-L.

Should I Use A Tax Company For Help?

This is one of the most common Offer in Compromise questions and it has a simple answer. Yes, you should always use a tax resolution company for your OIC process. The offer and compromise calculator can help you understand your situation, but it can’t do anything else.

An experienced tax company like IRS Tax Relief Network has worked with the IRS before. You’ll have better results by working with a professional company instead of tackling the problem yourself.

What Is The IRS Offer In Compromise Calculator?

The tax Offer in Compromise calculator is an online tool that can help you know if you qualify for an OIC offer. To use the IRS pre-qualifier tool, you’ll enter your financial information. The offer in compromise tool will calculate your situation, then tell you the amount you can offer to settle your taxes.

The IRS Offer in Compromise pre-qualifier is helpful when you’re making a plan. However, you should only use it as a guide. You still need to submit all the paperwork and go through the entire process to start the settlement process.

How Do I Get My Offer In Compromise Approved?

If the offer in compromise pre-qualifier says that you’re a good OIC candidate, you can help your offer be approved. First, make sure all of these conditions apply.

You’re not currently in bankruptcy
You have filed all your tax returns
You financially qualify for an OIC

If you meet all of these qualifications, the IRS should consider your application. An Offer Examiner will look at your case and see if you qualify. Some candidates are approved right away. Other people have to wait to get a response.

Who Is Most Likely To Get An Offer In Compromise?

Your financial status will impact whether you can get an OIC. The IRS has many rules and limits in place that determine who can be approved. The best candidates for an Offer in Compromise have little to no assets, as well as little to no income.

What Are The Offer In Compromise Guidelines?

You need to do the following things to apply for an OIC.

File all tax returns. If you don’t, the IRS will return your application without considering your offer.
Make all Estimated Tax Payments for the current tax period.
Your reasonable collection potential must be lower than your overall back tax liability.
Submit the entire Offer in the Compromise booklet. Using the IRS Offer in Compromise pre-qualifier tool alone isn’t enough.
You need to submit a down payment and a $186 filing fee.

If your offer is approved, you still need to do the following things.

Pay lump sum offers in five or fewer payments.
Pay periodic offers in six or more monthly payments. Your entire offer must be paid within 24 months.
Continue to pay all future taxes in full and on time for five years.

How Long Does An Offer In Compromise Take?

Most OIC cases are settled in 4-6 months for individuals. If you’re filing as a business, expect it to take 9-12 months.

Who Should Not File For An Offer In Compromise?

An Offer in Compromise is a great tool for some people, but it’s not meant for every situation. The professionals at IRS Tax Relief Network can help you figure out if an OIC or a different strategy is best for you.

People in the following situations should not file for an Offer in Compromise.

Your collection statuses are almost 10 years old. The IRS can’t collect tax debt that’s more than 10 years old. Older debt will be written off. However, if you file for OIC, your collection status is frozen and doesn’t expire.
You are filing for bankruptcy, or have ever filed for bankruptcy. If you’ve ever gone through a bankruptcy, IRS Tax Relief Network will help you work with the IRS Offer Unit instead of filing for an Offer in Compromise.
You have a pattern of unpaid taxes. If you haven’t filed all your returns, missed several deadlines, or don’t pay attention to your taxes, you’re not a good OIC candidate. You need to be in total tax compliance for five years after your Offer in Compromise is accepted, or you’ll owe all the full amount again. If you’ve struggled with taxes in the past, let IRS Tax Relief Network help you build new habits.

Now that you have read this article on IRS Offer in Compromise help, you should feel confident that you understand the process and be ready to begin it properly. Remember that the proper protocol must be followed and you must submit the correct documentation in order for your request to be considered.

Your freedom is a click away. Click here now to request a FREE tax relief consultation from one of our experts at IRS Tax Relief Network. You can also reach us by telephone at 1-877-TAX-MEND (1-877-829-6363) for immediate help.

Offer In Compromise with IRS