The IRS has a program called the Offer in Compromise that allows the IRS to compromise outstanding tax liabilities with a financially burdened tax payer for often less than the amount they owe to the Federal government. When the IRS accepts an Offer in Compromise they are allowing the taxpayer to pay what they can afford and the remaining balance is forgiven. The tax payer is then said to be in good standing with the IRS again.
To be eligible for the Offer In Compromise program a tax payer must have filed all missing tax returns for the previous 6 years. The tax payer must not be in an open bankruptcy at any time in the Offer In Compromise process.
The amount the IRS will base its settlement on includes many things such as your income, the amount of people you claim on your income taxes, other necessary household expenses, and the county you live in. Additionally, your assets will be analyzed such as money in the bank, retirement accounts, and equity in other assets such as a home or automobile. This is the process used by the IRS to determine if you have the ability to repay your debt.
Depending on your household income, you may be required to pay an application fee and 20% deposit on the proposed balance.
Once an agreement has been reached with the IRS you are obligated to pay the settled amount in 5 installments or less. The Offer in Compromise program also states that if you receive an income tax refund the following tax year the IRS will keep that refund. It is important to know that if your offer is accepted you are required to file and pay your taxes on time for the next 5 year otherwise your offer will be rescinded and you will owe the original balance plus penalties and interest. Once you are granted one Offer In Compromise, you cannot request another one for at least 5 years.
All in all, you can expect this process to take at least 4 months from start to finish and possibly up to 9 months. If have missing income tax returns you will be required to file for those years before you can begin to apply for the Offer in Compromise.
Our tax partners will prepare all documents necessary to negotiate for a settlement with the IRS that is less than the total amount that you currently owe.
For more information on the Offer in Compromise, visit the IRS website at www.irs.gov