Introduction to the Offer in Compromise Process
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.
How to Apply for an Offer in Compromise
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:
- Form 656. This is the Application itself.
- Form 433-A (OIC). This is a personal financial statement for the IRS to review.
- A check for $186. This is the application fee. The fee is waived if you meet the low income certification requirements.
- A check for 20% of the offer amount. This is non-refundable, but is waived if you meet the low income certification requirements.
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.
Step 1: Preparing your OIC Application
Prior to filling out the application packet for an offer-in-compromise, you should gather the following documents and information:
- Pay stubs from your employer
- Statements from all other source of income, such as pensions, social security, interest/dividends, child support, etc
- Statements for each bank account, investment account, and retirement account
- Statements for your mortgage, car loans, and other secured debt
- Statements from unsecured debts, like you credit card
- Utility bills, such as power, gas, water, telephone, trash, and internet
- Documentation to support any other income sources, living expenses, or assets not listed above.
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.
Step 2: Filling Out Your OIC Application
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.
Step 3: Waiting to Hear Back
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.
Step 4: Answering Questions and Negotiating Your Offer
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.
Step 5: The Final Determination
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.
Step 6: Appealing the Final Determination
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:
- Eligibility Requirements
- The Offer Amount
- How the IRS Decides to Accept or Reject an Offer in Compromise
- Alternatives to the Offer in Compromise
If you have any other questions about the Offer in Compromise Process, please contact our Reno, NV office.