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Offers In Compromise - Taxpayer Help and Education (IRS Tax Topic 204)

If you cannot pay your tax debt in full or you dispute what is owed, you may propose to resolve the matter with an Offer in Compromise. The purpose of an Offer in Compromise is to settle a taxpayer's liability for less than the full amount owed. The ultimate goal is a resolution that is in both the government's and the taxpayer's best interest.

To submit an offer complete Form 656, Offer in Compromise. Detailed instructions are provided with the form.

If the basis of your offer is inability to pay, also complete Form 433-A, Collection Information Statement for Individuals and/or Form 433-B, Collection Information Statement for Businesses. We cannot consider an offer on this basis if you're involved in an open bankruptcy proceeding or if you have not filed all federal tax returns. In-business taxpayers must have also timely filed employment tax returns for the two prior quarters and have timely deposited all employment taxes for the two prior quarters and the current quarter. The amount of your offer should equal or exceed your equity in assets, your ability to make installment payments from future income, amounts we can collect from third parties on your behalf and funds that are available to you but not subject to the Service's collection actions. You may choose to pay the offer amount in a lump sum, in monthly payments over the remainder of the statutory time allowed for collection or a combination of a lump sum and monthly payments. Generally, it is to your advantage to pay the amount in the shortest time possible because longer payment terms will require a larger offer amount.

If the basis of the offer is a dispute as to what is owed, provide a written statement of supporting evidence. We cannot accept a compromise on this basis if a court has decided the liability.

Ordinarily, we will withhold collection action while we consider your offer. The statutory time allowed for collection is suspended during the period your offer is pending.

An examiner will evaluate your offer and may request additional documentation from you to verify financial or other information you provide. If we decide a larger offer amount is necessary to justify acceptance you will be given an opportunity to amend your offer.

In exceptional circumstances, some taxpayers may qualify for a special type of Offer in Compromise even though the amount owed is correct and it can be paid in full. To be eligible for a compromise on this basis you must demonstrate that paying the debt would create an economic hardship or would be unfair and inequitable.

If the IRS grants you a fresh start by accepting your offer it is expected there will be no further delinquencies. If you do not abide by all the terms of our agreement, including filing all future returns and making all payments when required, your offer may be declared in default. We will reinstate the entire liability including accrued penalty and interest. All payments made toward the offer will be applied to the original liability.

If we reject your offer you will be notified by mail. In our letter, we will explain the reason for the rejection and provide detailed instructions on how to appeal our decision.

Additional information about the Offer in Compromise can be found on Form 656, and in Publication 594, Understanding the Collection Process. Publications and forms may be downloaded from this site or ordered by calling 1-800-829-3676.

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The above limited information is intended for informational purposes only.  If legal advice or other expert assistance is required, the services of a competent professional should be sought, and this general information should not be relied upon without such professional assistance. 

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CAUTION: There are many providers of services on the internet who will submit your Offer in Compromise forms. However, such providers merely have you complete the forms. These bargain basement "Offer experts" may be only mailing the forms you prepare to the Internal Revenue Service. Thus, they have done nothing for you. In fact, they may end up costing you more because critical review and analysis has not been done. When completing the financial statement forms and making the Offer, you are painting a financial picture that will determine the amount of an acceptable Offer. Unless your representative has the necessary skills and experience, you may have paid a small fee, only to be subjected to settling for more under the Offer than you otherwise should have. Your professional must have experience in: calculating your income and expenses; determining the amount of the offer you should make; valuing your assets and liabilities;  reviewing joint ownership considerations; working with the tax law and IRS internal procedures; arguing the facts and the law, and negotiating with the IRS. 

The IRS has a history of intimidation, and let's face it, they will take advantage of any taxpayer who represents himself, and even a taxpayer's advocate who is weak. Remember, IRS Offer Specialists generally have "collection" backgrounds and they come at you from the perspective of getting as much money as they can.

In the end analysis, you should measure the benefits you derive from the final result. For a taxpayer to engage someone who merely mails in your Offer forms for a $300.00 fee, what at first blush looked like "such a deal", may in reality end up costing you many thousands of dollars more because you didn't choose a tax professional who would negotiate the best settlement for you.

Brought to you by A. Nathan Zeliff, Attorney at Law. E-Mail:

For assistance, please contact me.

P.O. Box 6515
Moraga, CA 94570

Telephone:  (925) 820-1004        FAX: (925) 299-0363

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