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
433-A, Collection Information Statement for Individuals
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
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
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.
Click for Graphics Version of above from IRS web site]