The IRS Offer In Compromise Program

If you are a taxpayer who is unable to pay your federal tax liability, you may be able to settle for a lesser amount through the IRS’s Offer-in-Compromise (OIC) program. In order for taxpayers to qualify for this program, you must meet the following criteria:

1) As a taxpayer, you must include a $150 application fee or a signed Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment. And, you must submit either a lump sum offer (20-percent payment or a signed Form 656-A) or periodic payment offer (first installment or signed Form 656-A);

2) As a taxpayer, you may not be a debtor in an open bankruptcy proceeding.

Furthermore, The IRS says there are three circumstances under which an OIC may be accepted:

1) When there is doubt as to collectability. Meaning, it is doubtful that the taxpayer could pay the full tax liability.

2) When there is doubt as to liability. Meaning there is a legitimate doubt that the assessed liability is correct (for example, the examiner incorrectly interpreted the law or failed to consider evidence presented by the taxpayer, or if new evidence is presented by the taxpayer).

3) Effective tax administration. An exceptional circumstance warrants an OIC (for example, collection would create an economic hardship or would be unfair or inequitable).

In addition, the IRS provides the following advice for taxpayers applying for an OIC:

1) Explore all collection options beforehand.

2) Complete the “Is Your Offer in Compromise Processable?” checklist available in Form 656-B, Offer in Compromise Booklet.

3) Submit all required documentation.

4) Complete all items on Form 656, Offer in Compromise.

5) Include the required fees and payments.

6) You will also need to make sure that you are current with all filing and paying requirements (for example, estimated taxes and federal tax deposits) and stay current.

7) Always respond promptly to requests for more information.

8) Complete all items on Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B, Collection Information Statement for Businesses.