If you are worried about IRS tax debt and feel like there’s no way out, you are not alone and there may actually be a solution. It’s called an Offer in Compromise and it gives you a chance to settle your tax debt for less than what you owe. But not everyone is qualified. The IRS only accepts offers from people who can’t afford to pay the full amount. That’s why it’s important to understand how the program works and what steps you need to take if you want to apply. In this article, we will break it all down in simple terms: who qualifies, how to apply and how to improve your chances of approval.
Basic Requirements for Offer in Compromise:
Before you apply for an offer in compromise, the very first step is making sure you meet the IRS’s basic eligibility rules. It’s the IRS’s way of making sure you are in good standing before they consider cutting you a deal. If you are self employed, you are making your estimated tax payments on time. If these things are not in place, the IRS will not even look at your offer. So before you jump into the paperwork, make sure you have got these key requirements checked off.
Before moving forward, it’s crucial to understand the 10 Common Mistakes to Avoid in Tax Representation.
Types of Offers in Compromise
Not all offers in compromise are the same, the IRS knows that everyone’s situation is different. So the IRS created three types of offers in compromise, each one based on why you can’t pay your full tax bill. Here are the three categories.
You Can’t Afford It:
This is the most common type. This means you don’t have the money and assets to pay your full tax debt not now and not in the future. If the IRS sees that there’s no realistic way to collect the full amount, they may agree to settle for less.
Doubt as to Liability:
Sometimes the IRS might have made a mistake or there’s a genuine disagreement about the amount owed. If you have a strong reason to think you don’t owe the full amount, this type applies to you.
Paying Would Cause Serious Hardship:
This one is for people who technically could pay, but doing so would cause serious financial hardship like losing your home or unable to pay for medical care. In rare cases like this, the IRS may be willing to work with you.
In some cases, the IRS may reduce penalties if you’re facing genuine hardship or special circumstances.
Learn more here: How Can You Qualify for IRS Penalty Abatement?
What the IRS Considers in Compromise
Before the IRS decides whether to accept your offer in compromise, they don’t just take your word for it they want to see the full picture. The IRS wants to know exactly what you can realistically afford to pay, both now and in the future.
Here is what they look at:
How much money you make:
Your job, business and anything that brings income of source.
Your monthly Expenses:
Rent, utilities, medical bills, transportation and anything of value. They will compare your spending to their guidelines to make sure it’s reasonable.
Your ability to pay over time:
If you can’t pay the full amount right now, they will consider what you could pay over a reasonable period.
What you own:
Your home, car, bank accounts and anything else you own. If you have equality in something, the IRS should want to know.
Payment Method Options in Compromise:
Your home, car, bank accounts and anything else you own. If you have equality in something, the IRS should want to know.
You have two options, so you can choose what works best for your situation.
Lump sum payment:
You can pay 20% of the offer amount when you apply and then rest in a few five and fewer monthly payments. Best if you can pull together the cash and want to get it over with quickly.
Monthly payment plan:
You will start making monthly payments and if they are approved, you can just keep going until it’s paid off mostly within 6 to 24 months. It’s easier if you are on a budget.
What Happens After You Apply for an Offer in Compromise
Once you have submitted your offer in compromise, don’t expect a very quick reply. The whole process can take a few months, so patience is the key.
Here is what usually happens:
- The IRS takes a close look at your financial situation to see if your offer is fair.
- They may reach out and ask for extra documents, just be ready to respond.
- If you picked the monthly payment option, you need to keep paying while they review your offer.
Conclusion
The offer in the compromise program can give you a chance to reset and move forward. It’s not always easy to qualify and the process can take time, make sure you meet the basic requirements, choose the right type of offer and stay on top of paperwork and payments.
Need Help with IRS Tax Debt or an Offer in Compromise?
At World Tax CPA, we specialize in tax resolution services, IRS representation, and tax compliance for individuals and small businesses. Whether you’re dealing with back taxes, penalties, or need help applying for an Offer in Compromise, our expert tax professionals are here to guide you every step of the way.
👉 Contact us today for a free consultation and Call us today at (888) 482-0284 to take the first step toward resolving your IRS tax problems.