Outside of an audit, an Offer in Compromise is the most scrutinizing process a taxpayer can experience because of the significant savings associated with tax settlements.
Offer In Compromise Overview
Depending on your business’s financial circumstance, you may qualify to settle your entire liability for a much lower amount with an offer in compromise. This type of tax settlement with the IRS may be a legitimate option if you can’t pay your tax liability in full, or doing so creates a financial hardship. Additionally, if your offer in compromise is accepted, you may choose to make a one-time payment, pay over six months or make payments over a twenty-four month period.
Outside of an audit, an Offer in Compromise is the most scrutinizing process a taxpayer can experience because of the significant savings associated with tax settlements. The IRS offer specialist assigned to your case will investigate past and current financial transactions along with any real property and assets – in short, every aspect of your financial life will be probed and prodded until no stone is left unturned. The whole thing can be intrusive, unsettling, and extremely stressful for taxpayers to rehash past financial problems and all the more reason to seek professional help.
Boxelder Consulting’s team of licensed tax attorneys, accountants, and enrolled agents have decades of combined experience preparing, submitting and negotiating tax settlements of this nature. It may seem counter-intuitive, but we find the best way to deal with an outstanding liability is to keep the past encapsulated and begin by focusing solely on the present. Our comprehensive approach first focuses on estimated tax payments and your current entity structure to assess the magnitude of your tax exposure. After this assessment, our team will review your financials starting in the present and working backwards one year at a time. Eating the elephant one bite at a time takes a hugely stressful situation and breaks it up into more manageable chunks – making the tax resolution process less anxiety provoking and more productive for our clients.
How to Apply for an Offer in Compromise
An Offer in Compromise is not for everyone and simple statistics support this claim. It is a known fact that the IRS only accepts a very small percentage of all offers filed; proof that the odds are not in the taxpayer’s favor. Before embarking on the arduous OIC application process, the taxpayer must be absolutely confident that their tax debt has been legally compromised for one of the following reasons:
- Doubt as to Liability – Doubt exists that the assessed tax is correct.
- Doubt as to Collectibility – Doubt exists that the taxpayer could ever pay the full amount of tax owed.
- Effective Tax Administration – There is no doubt; the tax is correct and could be collected but an exceptional circumstance exists that allows the IRS to consider a taxpayer’s OIC.
Using one of the reasons above, the taxpayer must demonstrate before the IRS that collection of the tax would create an economic hardship in order to be eligible for an Offer in Compromise.
Before the IRS can consider your request for an Offer in Compromise, there are additional eligibility requirements that must be met for qualification purposes. The IRS requires the taxpayer to be current with the filing of tax returns for all previous years. Furthermore, any taxpayer in an open bankruptcy proceeding is immediately disqualified for OIC eligibility. If you are still unsure about whether or not you would qualify, the IRS provides an online Offer in Compromise Pre-Qualifier test to help you determine your eligibility status.
Submitting Your Offer
The IRS provides step-by-step instructions for submitting all the required forms in the Offer and Compromise Booklet (Form 656-B). If you meet the Low Income Certification guidelines, be aware that you do not have to send in an application fee. Furthermore, if you do not qualify for low income certification, the completed offer in compromise package will include:
- Form 433-A (OIC) Individuals OR 433-B (OIC) Businesses
- Form 656(s) – individual and business tax debt (Corporation / LLC / Partnership)
- $186 application fee (non-refundable)
- Initial payment (non-refundable) for each Form 656
A quick glance through the Offer and Compromise Booklet is enough for anyone to understand that the application process is a serious commitment. Here at Boxelder, we recommend you don’t go it alone. Call one of Boxelder’s licensed tax consultants today – we’d be happy to assess your options and answer any questions you may have during a free consultation.