How Does an Offer in Compromise Work?

March 13, 2020

If you owe federal taxes you are unable to pay, you may be able to qualify for an offer in compromise. With this type of arrangement, the IRS agrees to settle your tax debt for less than the total amount you owe. Encino tax consultants can help you prepare an offer that meets the IRS guidelines for this program.

Eligibility Requirements

To qualify for an offer in compromise, you must make all required estimated tax payments and file all outstanding tax returns. In addition, you cannot make an offer in compromise if you have an open bankruptcy filing. The IRS will also consider your income, assets and expenses to determine the amount of taxes you have the ability to repay.

Application Process

If you are eligible for an offer in compromise, you must submit a complete application packet along with a nonrefundable application fee of $186. Submit IRS Form 433-A along with all required financial documentation. If you are requesting a monthly payment plan for your offer in compromise, you should make the first payment along with your application. If you want to pay your offer in a lump sum, you should send 20% of this amount with your offer in compromise application.

Your offer in compromise application must contain an offer that represents the amount of taxes you can afford to repay. Encino tax advisors can help you create an appropriate offer. If the IRS thinks you can afford to pay more taxes than indicated by your offer, the agency will reject your application.

An offer in compromise is not the right choice for every taxpayer. If you are struggling to repay your tax debt, you may want to seek help from professional Los Angeles tax preparation services. A qualified CPA can help you explore your options, such as requesting an IRS payment plan or declaring currently not collectible status from the agency.