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What Is An Offer in Compromise And How It Can Help Reduce Tax Debt

An Offer In Compromise is a program that allows taxpayers to settle their tax debt for a portion of the tax liability owed.  The acceptance rate hit an all-time high in 2016 with almost 43%!

Often people think they have to propose to pay a percentage of the tax debt in order for the IRS to accept the Offer In Compromise.  It actually is not based on your total tax debt,  but rather, on your ability to pay through assets, equity and income, and the collection statute date of the debt.

The IRS will accept your proposal to settle if they deem the amount proposed is the most they could collect from you within the collection statute date.  If not, they would give you a chance to negotiate for an increase or why they should accept the amount proposed.

You’ll need to complete IRS forms 433A(OIC) and 656 for the submission of the offer.  There is a fee of $186 to submit the offer proposal to the IRS, unless you qualify for the low income fee waiver.

There are two offer proposal options:

  1. Lump sum cash offer to full pay the proposed amount within 5 months from the date of acceptance. You’ll need to pay a 20% down payment, unless you qualify for the low income waiver
  2. Deferred offer to make payments on the proposed amount for 12 months, starting with the month of submission until the proposed amount is paid.

After you submit your offer proposal the IRS will automatically file liens to protect their interests.  IRS will then send you an acknowledgement letter that the offer has been received and the date to which an Offer Examiner or Offer Specialist will be assign to review your case.  It usually take 4-6 months from the date of acknowledgement for an Offer Examiner/Specialist to be assigned.

In the interim you are to maintain compliance with filing and withholdings as well as keep records of all your income and expenses.  Once an Offer Examiner or Offer Specialist is assigned the case moves really fast.  Therefore, it is best to have all supporting documents ready.  It will take the Examiner/Specialist about 30-60 days to review and make a determination on your account.  If the proposal is deemed acceptable the Examiner/Specialist will forward your case to judicial review and official acceptance.  You will receive an official acceptance letter from the IRS with the terms and condition of the acceptance and payments.  If the proposal is denied you will be given Appeal Rights.

If you are interested in learning more about the Offer In Compromise program and whether it applies to you The Tax Defense Group can help. We are a trusted name in tax relief and can work with you to ensure your offer has the best chance of being accepted.

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