The compromise offer allows you to pay your tax debt less than the full amount you owe. This may be a legitimate option if you cannot pay the full tax liability or if it causes financial difficulties. Can you negotiate tax debt with the IRS?
Make sure you qualify
The IRS will return any newly submitted Offer Compromise (OIC) application if you have not submitted all required tax returns and failed to make the required estimated payments. All application fees included in the OIC will also be refunded. Any initial payments required for a returned application will be applied to reduce the balance due. This rule does not apply to current tax returns if there is a valid file extension.
Always submit your return
It is helpful that the IRS offers more options for taxpayers struggling with hardships, and you also need to do the right thing.
First of all: if, until April 15, you owe the IRS an amount you can’t pay as a lump sum, it’s important to refund anyway. This will reduce some penalties. Sometimes customers tell us that they didn’t make the declaration because they were unable to pay the tax due. This usually causes them to pay fines that are much higher than they would have if they had at least made a declaration.
What do you have to do?
You will need to come up with a minimum bid amount as part of your OIC. This is the minimum amount that the IRS will accept and is based on the financial information provided on Form 433. In general, your offer must be equal to the net realizable value of your assets plus a surplus of monthly income after deducting your monthly expenses. Then multiply this number by 12 or 24, depending on the payment period you choose (five months or two years). You can follow the instructions on form 433 to calculate your minimum bid.
Understand the process
When evaluating your offer:
- Your non-refundable payments and fees will be applied to your tax liability (you can designate payments for a specific tax year and tax debt);
- A notice of federal tax lien may be filed;
- Other collection activities are suspended;
- The legal assessment period and collection deadline are extended;
- Make all required payments related to the offer;
- You do not have to make payments based on an existing installment agreement; and
- Your offer will be automatically accepted if the IRS fails to make a decision within two years of receiving the IRS.
The IRS offers programs for Americans to return to their taxes. The key is quick action and working out a solution as soon as possible.