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What is an offer and compromise with the IRS?

In May 2012, the Internal Revenue Service announced an offering of more flexible terms to its Offer in Compromise program that would benefit the more financially distressed citizens in an opportunity to get past their tax problems far more quickly than ever before — provided they qualify for the program and are eligible for the rules that apply.

An offer in compromise allows a tax payer who is struggling financiallyto settle their tax debt for a much lower amount than what is actually due. This is a great option extended by the IRS to those who can’t pay their full taxes or may find themselves in financial problems. For this program, the IRS evaluates a person’s income, their ability to pay, their overall assets, equity, and expenses. After weighing these factors, the IRS determines a lump sum payment that is affordable to the tax payor.

The option to accept this offer of paying less to the IRS is based on the sole discretion of the IRS. Before submitting an offer in compromise, a person should check IRS guidelines currently in place to determine whether they would be eligible to apply for this relief or not.

In order to be eligible for this program you must:

  1. Be current with all filing and payment requirements.
  2. If you are in an open bankruptcy proceeding, you would not be eligible.
  3. Check with the IRS website and use the ‘offer in compromise’ Pre-Qualifier to understand your eligibility status.

The IRS will usually approve an offer if the amount offered is the maximumthat can be expected to be collected within a particular span of time. Ideally, a person should have explored all other payment options before submitting an offer in compromise to the IRS.

What the tax payer needs to do

In order to be eligible for the ‘offer and compromise’ program the tax payer must do the following:

Be able to pay the amount you propose to offer to the IRS in a timely manner.

You must have filed al your tax returns ontime and make sure that you pay your taxes on time for the next couple of years.

You must agree to let the IRS keep any tax refunds and credits that are applicable to your tax debt before you submit your offer.

In case you fail thepayment terms laid out by the IRS, the IRS can revoke the ‘Offer in Compromise’, making you liable to pay the full tax amount.

Payment options

What you pay to the IRS initially will be dependent on your offer and the payment options that you have chosen.

You can make a lump sum cash payment by submittingabout 20 percent of the total amount of your offer in your application. Once you get an acceptance of the offer you submitted, then you can pay back the balance amount in later installments (generally a maximum of 5 installments).

Once your initial payment with the application is accepted and you are included in the programyou can also elect to pay the remaining amount of your offer in a lump sum.

The ‘Offer in Compromise’ is a good program that can save many people from going bankrupt and,  used wisely, it can definitely pull you out of financial instability.


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