IRS Offer in Compromise: How to Make the Process Successful

Based on the recent economic downturn, many taxpayers are facing financial pressures and now find themselves unable to pay their income tax bill. That's why many are requesting an offer in compromise from the IRS.

But an offer in compromise is not for everybody. Many people still believe that if they currently do not have the funds on hand then the IRS will just automatically settle on the tax debt. This is simply not the case. Any request that is made needs to be diligently completed and thoroughly reviewed prior to submission to the agency.

Prior to submitting your request for an offer in compromise, make sure that you explore all other options first. You may be able to borrow funds from family or friends and or even be able to take out a personal loan. In reality, there may be other resources that you can tap into. If not, make sure to consult with a CPA or tax attorney to see if an offer in compromise is right for you.

Taxpayers are required to file Form 656 for the offer or Form 656-L when they have reason to believe that the tax liability is incorrect. In most instances, taxpayers must submit Form 433-A or Form 433-B to provide collection information. Neither of these two forms are required when the taxpayer submits an offer just based on doubt as to the existence of the income tax liability.

One issue that many taxpayers fail to pay close attention to is making sure that all the required information gets properly submitted to the agency on a timely basis. If you don't mail in the proper information or if the information is incomplete it may substantially delay the process. It may take months to get information as to whether the offer in compromise was accepted.

Don't forget to pay your application fee or your offer will be rejected even before it is reviewed. For married couples who have the same joint tax liability, they can file just one Form 656 and list the joint liability. A fee of $150 must be attached to the form. When a married couple has a joint liability and one of the spouses has an individual tax liability, two offers and two application fees are required. Many people don't realize that fees are assessed upon submission of the required forms.

An important step in the process is making sure that you are current on all your income tax filings. It will not look good to the IRS if you are not filing tax returns or making timely tax payments. This is a very important part of the process.

Remember that if your offer in compromise settlement is accepted, you are required to timely file all income tax returns and make timely tax payments for five full years or until your offered amount is paid in full, whichever time period is longer.

Failure to adhere to the above conditions can result in default of the offer and the IRS can then collect the amounts originally owed plus any penalties and interest. Completing a successful offer in compromise can be challenging. Do not navigate the forms yourself...make sure that you hire a professional that can greatly increase your chances of success.