OFFER IN COMPROMISE SERVICES | S.H. BLOCK TAX SERVICES
As tax professionals, we know firsthand how difficult tax debt can become. The worry and stress can take an enormous toll on anyone. If you are struggling with tax liability, you need to know that the Internal Revenue Service wants to see you pay off your debt and be free from this burden. That is why they provide several options to help taxpayers unbury themselves from tax debt.
One of those options is the “Offer in Compromise” program. It allows you to settle your debt for less than what you actually owe the IRS—sometimes only a small fraction of what you owe. Who wouldn’t want that?
If you believe you may qualify for an Offer in Compromise (OIC), the challenge is in writing a good offer, with a solid argument outlining why the IRS should accept a lower sum from you. An experienced tax professional can be an invaluable resource for putting together a convincing Offer in Compromise.
At S.H. Block, our offer in compromise specialists have experience with the tax law, the forms and the financial documentation required, and can help you put together your best offer for the IRS.
Who Qualifies for an Offer in Compromise?
There are some basic qualifiers for the IRS Offer in Compromise program. If you are in the midst of bankruptcy proceedings, you do not qualify. If your debt has been confirmed or established by a final court decision, you do not qualify.
You need to have filed all your tax returns, and update your withholdings before you can apply for an OIC. If you pay quarterly taxes, you must be current on your required estimated tax payments. For businesses, you must be current on your required federal tax deposits.
The IRS has a useful tool to check whether you qualify for an offer in compromise. You can check your eligibility today.
That said, even if you meet all the criteria listed and the IRS tool says you’re eligible, this doesn’t guarantee the IRS will accept your offer—it only means you’re eligible to apply.
When Will the IRS Accept Less Than the Taxpayer Owes?
If you have a tax liability with the IRS, then it is within their right to collect that full amount from you. So why would they compromise on a lower sum?
First of all, the IRS does not want to see you buried in debt, they want to help you achieve a debt-free status and live a successful life. Second of all, they understand that sometimes it is better to collect a smaller amount of money than to collect no money at all. Therefore, they are willing to work with you to resolve your tax debt.
You must prove, however, that you need their help to resolve the debt. They offer three options for you to show why they should accept an Offer in Compromise from you.
- Doubt as to Collectability: You don’t have enough assets or income to pay off your tax debts in a reasonable amount of time.
- Doubt as to Liability: You can convincingly argue that the IRS made a mistake when they calculated your tax liability.
- Effective Tax Administration: You technically have enough assets or income to pay your debt, but doing so would cause financial or economic hardship. (For example, it might leave you unable to meet basic living expenses.)
In order to prove that you are serious about using an OIC to resolve your tax debt, there is a $205 application fee. You also need to provide good supporting documentation to show them that you deserve to have your offer accepted.
Working with a tax professional who has experience with successfully applying for an OIC, like S.H. Block Tax Services, will help you be confident that you have put together the most effective argument you can to persuade the IRS to accept a lower amount.
How to File for an Offer in Compromise
There are several forms that comprise the application package. These need to be sent in, along with your application fee.
- Form 656: This is the Offer in Compromise form, which lists the tax years and tax debt you would like to compromise on. This is where you put your offer amount, and tell the IRS how you would like to pay. You can choose either lump sum cash offer, or you can make a periodic payment offer.
- Form 433-A (individuals) or 433-B (businesses): This form asks about all your assets, income, liabilities, and expenses. It will help with calculating an appropriate offer, and includes a section for you to explain any exceptional circumstances of your financial situation.
- Supporting documentation: Any copies of documents to support the information in your Form 433, as listed on the form.
Calculating your assets and liabilities can be difficult, but it’s crucial to remember every detail and get all the information correct so that you achieve the lowest offer the IRS will accept. The IRS will calculate a reasonable collection potential (in other words, what they think they can actually collect from you based on your assets and future income), and you’ll need to offer to pay at least this amount to have your OIC accepted.
Working with tax professionals on an Offer in Compromise is particularly important for success, since it is one of the most complicated tax relief programs. When you work with an experienced tax professional, they’ll do a thorough review of your financial documents to ensure that you are in the best position to have your OIC approved.
The Tax Professionals at S.H. Block can Help You with Your Offer in Compromise
At S.H. Block, we understand that tax debt is stressful and difficult, and it might feel like you’ll never be able to pay the IRS the amount you owe. An Offer in Compromise can be a great solution, but putting together a persuasive offer for the IRS is challenging.
Our team can help you sift through your financial documents to create the best offer possible for your situation. We can also rely on our knowledge of tax law and advise you if we think there is another solution that is a better fit for your financial status—such as Currently Not Collectible, or an Installment Agreement.
We offer a free consultation to prospective clients, so you can ask us your tax liability questions with no obligations. Call us at (410) 727-6006 or fill out our contact form and let us see how we can help you resolve your tax debt today!
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.