Do You Qualify for an Offer in Compromise Settlement?
In uncertain financial times, many people struggle to pay for food, housing and other essentials. As people struggle to pay for essentials, they tend to not pay back taxes. But the IRS will not go away. Many people consider an offer in compromise to try to reduce any balance they owe to the IRS. The reality is that it may be difficult for the average person to complete an offer in compromise settlement.
But completing and filing all the required offer in compromise forms can be a daunting task. You may need to seek the help of a qualified professional, including CPAs and tax attorneys. Completing the forms correctly the first time is of great importance.
Taxpayers must file Form 656 or Form 656-L. Be advised that if you have a tax lien on record prior to acceptance of the offer, the lien will not be released until the offer terms have been satisfied or until the tax liability is paid in full, whichever occurs first. A Notice of Federal Tax Lien is often filed during the course of an offer in compromise settlement investigation.
Not only is it critical to file your forms timely, you must make sure that you carefully reply to any IRS correspondence. The IRS may request additional information in order to process your offer.
Taxpayers must submit $150 with the offer in compromise forms. Some taxpayers may be exempt from the fee depending on their income or whether or not the offer is based strictly on doubt as to tax liability. Taxpayers who claim the poverty guideline exception are required to certify that they are eligible by filing Form 656-A, Income Certification for Offer in Compromise Application Fee.
The IRS will maintain a record of all payments made or applied to the total original income tax liability before the offer was submitted. The IRS can also keep any proceeds from levies that were served prior to submission of the offer in compromise settlement, but that were not received at the submission date of the offer.
Remember that if your offer in compromise settlement is accepted, you are required to timely file all income tax returns and make timely tax payments for five full years or until your offered amount is paid in full, whichever time period is longer. If you fail to adhere to these conditions, it can result in default of the offer and the IRS can then collect the amounts originally owed plus any penalties and interest.