Offer In Compromise

To qualify for an Offer in Compromise, taxpayers must demonstrate to the IRS that paying their full tax liability would cause financial hardship or would be unfair due to exceptional circumstances. The IRS considers factors such as income, expenses, asset equity, and ability to pay.

Taxpayers must submit a detailed application (Form 656) along with supporting documentation to the IRS. This includes financial statements, income documentation, and details about expenses and assets.

The IRS evaluates the taxpayer’s financial information to determine their ability to pay. They may request additional information or documentation during the evaluation process.

If the IRS accepts the Offer in Compromise, the taxpayer can settle their tax debt for the agreed-upon amount. This amount is typically less than the total amount owed, reflecting the taxpayer’s ability to pay.

Taxpayers have several options for making the payment:

   – **Lump Sum Cash Offer**: Pay the agreed-upon amount in a lump sum.

   – **Short-Term Periodic Payment Offer**: Make payments over a period of up to 24 months.

   – **Deferred Periodic Payment Offer**: Make payments over the remaining statutory period for collecting the tax debt, which can be up to 10 years.

Upon acceptance of the Offer in Compromise and completion of the agreed payments, the taxpayer’s remaining tax liabilities for the specified tax periods are considered settled.

Taxpayers must remain compliant with all tax filing and payment requirements for the next five years after the Offer in Compromise is accepted. Failure to comply can result in the reinstatement of the original tax debt.