Is an Offer in Compromise Right for You?

Should the IRS determine that a taxpayer is unable to set up an installment agreement, and has exhausted the search for other payment arrangements, the last option would be to file an offer in compromise. The objective of the Offer in Compromise program is to accept an offer in compromise when it is in the best interests of both the taxpayer and the government and promotes voluntary compliance with all future payment and filing requirements.

In order to be considered for an Offer In Compromise, a taxpayer must have met all of the following requirements:

1. Used the most current versions of Form 656, "Offer in Compromise" and Forms 433-A and 433-B, "Collection Information Statements". The most current versions are dated May 2001;
2. Submitted the 0 application fee, or Form 656-A, "Income Certification for Offer in Compromise Application Fee," with the Form 656;
3. Filed all required federal tax returns;
4. Filed and paid any required employment tax returns on time for the two quarters prior to filing the Offer in Compromise, and is current with deposits for the quarter in which the offer in compromise was submitted;
5. Is not a debtor in a bankruptcy case.

What Taxpayers Should Know About Filing an Offer in Compromise

Application Fee Required for Offer in Compromise - All taxpayers who submit a Form 656, "Offer in Compromise," postmarked on or after November 1, 2003, must pay a 0 application fee, except in two instances:

1. The Offer in Compromise is submitted based solely on "doubt as to liability;"
2. The taxpayer's total monthly income falls at or below income levels based on the Department of Health and Human Services (DHSS) poverty guidelines.

Statute of Limitations for Collection is Suspended - The statute of limitations for collection of a tax debt is suspended while an Offer in Compromise is "pending," or being reviewed. The offer in compromise is pending starting with the date an authorized IRS employee determines the Form 656, "Offer in Compromise," can be processed. The Offer in Compromise remains pending until an authorized IRS employee accepts, rejects, returns, or acknowledges withdrawal of the offer in writing. If a taxpayer appeals an Offer in Compromise that was rejected, the IRS will continue to treat the Offer in Compromise as pending until the Appeals Office accepts or rejects the Offer in Compromise in writing.

Taxpayers Must File and Pay Taxes - In order to avoid defaulting an Offer in Compromise once it is accepted by the IRS, taxpayers must remain in compliance in the filing and payment of all required taxes for a period of five years, or until the offered amount is paid in full, whichever is longer. Failure to comply with these conditions will result in the default of the Offer in Compromise and the reinstatement of the tax liability.

Federal Tax Liens are Not Released - If there is a Notice of Federal Tax Lien on record prior to the Offer in Compromise being submitted, the lien is not released until the terms of the offer in compromise are satisfied, or until the liability is paid, whichever comes first.

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