Offers in Compromise allow a person or business to reduce their tax liability and settle with the IRS up front. However, the IRS has certain eligibility requirements that a person or business must meet if they are to successfully submit an Offer in Compromise.
If you are an individual taxpayer and intend to submit an Offer in Compromise based upon Doubt as to Collectability (i.e. you are unable to pay), you must first show that you cannot pay, which is a function of your monthly income and your total assets.
Additionally, you must show that no personal bankruptcy proceeding is currently taking place. If such a proceeding is in progress, you will not be able to settle with the IRS on your own; rather, all such negotiations with the IRS must take place in the bankruptcy context, where the IRS will appear as a secured creditor of the debtor’s estate.
Third, you must make sure that you have actually filed all federal tax returns that you are required to file. This raises the distinction between filing a tax return and paying your taxes – they are not the same! You should always file your tax return regardless of your ability to pay, and until you do, you will be ineligible to settle with the IRS by way of an Offer in Compromise.
Finally, if you are a business with employees and are required to make federal tax deposits for the current quarter and the two preceding quarters, and you have failed to do so, you will be ineligible for an Offer in Compromise.
Provided you have met these threshold requirements, you will be eligible to submit an Offer in Compromise, as long as you submit the $150 application fee, or a completed Form 656-A, which will operate to waive the filing fee based upon a showing of financial hardship, as well as a completed Form 433-A for individual taxpayers and Form 433-B for businesses.
Generally speaking, these requirements apply to both Offers in Compromise based upon Doubt as to Collectability as well as Offers in Compromise based upon Effective Tax Administration or “ETA,” but the ETA requires a narrative along with supporting documentation illustrating the hardship that would result from paying the amount owed the IRS.
Offers in Compromise based on Doubt as to Liability, which you should submit where you believe you do not owe the amount the IRS has attempted to collect, have different requirements, which are outside the scope of this discussion, but generally speaking, you will be required to provide a basis for your assertion that you do not owe the amount the IRS says you owe.
If you have any questions or if we can further assist you, please contact our San Diego Offer in Compromise attorneys.
For more information, please see:
- More about Offer in Compromises
- The Offer in Compromise Process
- An Overview of an Offer in Compromise
- Eligibility Requirements
- Pros and Cons of an Offer in Compromise
- How the IRS Evaluates an Offer in Compromise
- Why Retain RJS Law for your Offer in Compromise?
- Offers in Compromise and Dissipated Assets
- Offer in Compromise Alternatives
- National Tax Agencies