Tax Offer in Compromise

Under the right circumstances, the IRS and some state taxing authorities will accept a settlement payment that is smaller than the outstanding tax liability.  This generally results from an offer in compromise, a labor and procedure-intensive process that requires extensive documentation and proof that the taxpayer is otherwise up-to-date on all other tax issues.

The IRS regularly returns/rejects offers in compromise due to insufficient documentation and continued tax issues.  The IRS will agree to an offer in compromise if:

• The taxpayer is unable to address the liability in full and the documentation provided supports this claim;
• The taxpayer is not liable for the tax debt;
• The full payment of the debt would result in a substantial hardship for the taxpayer.

The process for state taxing authorities is similar, in states that accept offer settlements.  Some states statutorily cannot settle for less than the principle tax owed, so an offer in compromise is not a possible resolution. Preparing and submitting an Offer in Compromise is laborsome and requires attention to detail, but can result in debt reductions.    Without professional assistance, offers in compromise are extremely difficult to successfully navigate.

The following minimum requirements must be met in order for an Offer in Compromise to be considered:

• The taxpayer is not a debtor in an open bankruptcy proceeding.
• The $150 application fee, or a signed Form 656-A, "Income Certification for Offer in Compromise Application Fee and Payment" must be submitted.
• The 20 percent payment with the lump sum offer, or a signed Form 656-A, "Income Certification for Offer in Compromise Application Fee and Payment" must be submitted.
• The first installment payment on a periodic payment offer, or a signed Form 656-A, "Income Certification for Offer in Compromise Application Fee and Payment" must be submitted.

Further, you are required there after to make any payments on time and to stay current during and 5 years after the Offer in Compromise is paid in full.

Please contact Larson Financial to get answers specific to your situation.