The IRS offer-in-compromise program allows taxpayers to settle their tax debt for less than they owe. Below is free information on the process of submitting an IRS offer in compromise. For more information on the IRS offer in compromise program, please contact us to speak with a tax attorney about your case.
In order to settle your tax debt with an offer in compromise, you must submit a completed application packet to the IRS. This packet consists of the following:
The application packet is available from the IRS’s website. Here is the link. You can also pick the packet up from any IRS Office. Link: Information on the Reno IRS Office.
Prior to filling out the application packet for an offer-in-compromise, you should gather the following documents and information:
The IRS typically likes to receive statements from the most recent three (3) month period. Usually these statements can be accessed online and downloaded in PDF format, but you might have to request mailed copies in some cases so plan ahead just in case.
Once you’ve gathered all the above information, it’s time to start filling out the application (Form 656) and the financial statement (Form 433-A OIC). Filling out these forms needs to be done with extreme care. The IRS looks very carefully at the information on these forms, and it’s vital to your offer that everything is portrayed in the best light possible. Mistakes can lead to a rejection of your offer or worse. Because the forms are signed under penalty of perjury, intentional misstatements or false information can result in criminal prosecution. Read: 8 Dumb Things People Do When Submitting an OIC Application.
After your application packet is completed and sent in, you’ll have to patiently wait to hear back. Due to budget cuts and understaffing, it frequently takes the IRS between 6 and 9 months to start reviewing an OIC application. Because of the time delay, the IRS usually asks for a whole new set of the documents included with your application. This means new bank and credit card statements, pay stubs, etc. So, you’ll have to be very careful after submitting your OIC application to avoid large or frivolous purchases that the IRS could interpret as meaning that you have more disposable income than you application makes it seem. Read: Do’s and Don’ts After Submitting an Offer in Compromise.
Once you’ve heard back from the IRS and provided updated bank statements and other records, the agent reviewing your application will likely have questions about certain items. You’ll have to be very careful when answering these questions to make sure you don’t give away information that can be used against you to reject your offer. The IRS is very stingy with accepting offers and will look for any reason not to accept.
It’s also likely that you’ll have to do some negotiating during this period. The agent may not think your offer amount is high enough, in which case you can either refute the basis for this belief with additional information about your financial position or increase the amount of your offer. You can expect the IRS to wonder how you are able to offer additional funds if you financial statement indicates you lack any additional means, so have an explanation prepared. This phase can carry for an additional 1-3 months.
If all goes well, your offer will get accepted. You’ll receive written notification of acceptance from the IRS. The letter of acceptance will request you to send in the remaining portion of your offer amount. After the payment is processed, you’ll receive a letter confirming the discharge of your tax debt (and the conditions going forward, such as remaining tax compliant for the next five years). At this point, it’s been anywhere from 12 to 16 months since your offer was originally submitted.
On the other hand, you might have received a rejection of your offer. The time for negotiating is generally over at this point and you’ll have to consider whether to appeal the rejection or accept it and begin making payment arrangements.
You have the right to appeal a rejection of your Offer in Compromise within 30 days of the rejection (this date is provided on the rejection notice). The appeal is done through what is called a “Collections Due Process Hearing,” where you application is reviewed by an appeals officer who will reconsider the entire offer. Appeals are not usually successful, but should be pursued if the original agent was unreasonable or refused to accept additional information that supported your case.
For more information on the IRS Offer in Compromise program, please see:
If you have any other questions about the Offer in Compromise Process, please contact our Reno, NV office.