It can be a scary feeling when you owe a lot of money to the IRS but are unable to pay it in full. However, there are options for you to pursue if you find yourself behind on federal taxes.
An Offer in Compromise is a written agreement with the IRS that allows you to settle your tax debt for less than the full amount that you owe. However, not every taxpayer is eligible for this program. You can apply for an Offer in Compromise if you’ve filed the required tax returns and made all necessary estimated payments or deposits. Also, you must not have an open bankruptcy case or pending claim for innocent spouse relief.
So, if you meet those requirements, keep reading to learn all about an Offer in Compromise and how to know if it’s the right fit for your tax situation.
How Much Should I Offer in an Offer in Compromise?
This answer is going to be different for every person, which is why it’s a good idea to reach out to a tax lawyer to figure the exact numbers out. But your offer must be based on your ability to pay within a reasonable period of time.
The IRS considers your specific circumstances, which include your income, expenses, assets, health condition, and any other relevant information to determine how much you can pay.
When you apply for your Offer in Compromise, you’ll need to include your current financial records to verify the amount you’ve offered to pay. When you apply, you have to pay an application fee and may need to make a deposit. However, if you qualify for low-income status, the application fee is not required.
What Happens During the Process?
You’ll need to be patient with the Offer in Compromise process. It takes the IRS over a year to process, review, and make the decision to accept or reject an Offer in Compromise. And you aren’t off the hook during this time for your federal taxes.
While the IRS is making its decision, penalties and interest will continue to accrue. The IRS will keep your tax refund and the statute of limitations is extended.
If you’re unsure if your Offer in Compromise will be accepted or not, you can try using the IRS’s free Offer in Compromise pre-qualifier tool to see if you’ll be approved.
If My Offer in Compromise is Accepted, What Happens Next?
If your offer is accepted, you must make the payments that were outlined in your offer in a timely manner. Typically, you can pay a lump sum over five months or make monthly payments for up to two years. The IRS may file a tax lien (if that wasn’t done already), which will be released after all the required payments have been made.
Plus, for 5 years after your offer is accepted, you must file your tax returns on time and pay all taxes due. And the good news is that your Offer in Compromise will have no effect on your credit score, but it will be accessible to the public one year after it’s been accepted.
What happens if the IRS Rejects My Offer in Compromise?
The IRS recommends that you explore all other options of paying your past due taxes before applying for an Offer in Compromise. Not every Offer in Compromise is accepted, and you may find yourself in a tough situation if the IRS rejects your offer. If you paid a deposit when you submitted your Offer in Compromise, the IRS will keep the funds. You may, however, be able to designate which tax balance the funds are applied to.
However, you’re not out of options if your Offer in Compromise is rejected. You have 30 days to appeal a rejected Offer in Compromise. In your appeal, you’ll need to include:
- Your name, address, Tax Identification Numbers (TIN), and phone number
- Your state of appeal
- A copy of your rejected offer letter
- Tax periods or years involved
- A list of the items you don’t agree with and why
- The facts supporting your position
- The law or authority you’re relying on
- Your signature
- Any other information you think is relevant to your appeal
Tax Lawyer Mindy Meigs Can Guide You Through The Offer in Compromise Process
The Offer in Compromise process can be complicated and confusing, so you’ll want to discuss your options with an experienced tax lawyer. Mindy Meigs has over 15 years of experience as a former IRS tax attorney, so contact her today so she can ensure your Offer in Compromise goes smoothly.