Consider these tips on how to get an offer in compromise approved to instantly improve your chances of the IRS giving you relief from a sizable tax burden.
In this article:
- How to Get an Offer in Compromise Approved: Preparations
- How to Get an Offer in Compromise Approved: During the Application
- How to Get an Offer in Compromise Approved: After the Application
IRS Offer in Compromise Tips to Up Your Approval Chances
How to Get an Offer in Compromise Approved: Preparations
1. Consider All Payment Options First
The IRS encourages taxpayers who are considering filing an offer in compromise to think about other payment options first. Taxpayers can opt for installment payment schemes if they cannot pay in bulk.
The service investigates your financial capability, and their findings support their decision to deny or accept your request. If you can pay your taxes without encountering economic hardship, it’s better to check other ways to relieve yourself of your tax debt.
2. Take Stock of Your Assets and Future Income
You need to take an honest look at your finances before you draft your IRS offer in compromise letter.
Start by computing for the fair market value or realizable value of your assets and your income for one to two years. Once you have this amount, you can gain a good estimate of the amount you can promise to pay.
Thanks to the IRS’ Fresh Start Program, taxpayers can now present just a year or two years of potential income instead of five. If you can pay your back taxes in 5 months, you only need to present a year’s proof of income, but double the proof if you promise to pay in 6 months to 24 months.
3. Pay What You Can but Don’t Lowball the IRS
The amount you set for your offer in compromise must strike a balance between giving back the taxes you owe and maintaining an adequate budget for your daily living expenses.
If you encounter economic hardship, lower the amount you pay every month. Setting the bar too low, on the other hand, might cause the IRS to reject your offer if they find some extra room in your budget for tax payments.
4. Stay Current on Your Tax Returns
There are no ifs or buts about this requirement. Every taxpayer who seeks an application for an offer in compromise must file all their missing tax returns to qualify.
The IRS will return your application without due consideration if you have a tax return missing.
5. Assess If You’re Qualified First
The IRS created an Offer in Compromise Pre-Qualifier Tool to serve taxpayers who want to check if they are eligible for an OIC. You can use this tool to find out what information you need to give during the application process and get a sense of what the OIC process is like.
The tool only works as a guide for taxpayers and does not directly lead to an application.
6. Consult a Tax Specialist
A tax specialist will protect you from oversharing any sensitive financial information the IRS might, later on, take advantage of if you apply for an OIC by yourself. You will need to rely on one as well to increase the chances of the IRS approving your offer.
How to Get an Offer in Compromise Approved: During the Application
7. Download and Fill the Right Offer in Compromise Form and Prep Requirements
- Form 656: Offer in Compromise Form
- Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, applicable only to individuals
- Form 433-B (OIC), Collection Information Statement for Businesses, applicable only to businesses
- $186 Application Fee (does not apply to certified Low-Income Earners) for each Form 656
- Form 656-A is a special form in case you can’t pay the $186 application fee
- Form 656-L will become necessary if you want to show the IRS doubt about your tax liability and its exact amount.
Remember to fill in all the fields in these forms because the IRS rejects applications with incomplete information. You’ll have to ask your tax specialist to review the forms before you submit them to know if the information you’re giving is complete and correct.
8. Bring a Downpayment of Your Offer
You must bring your initial offer payment to show the IRS you’re really willing to pay your tax debt. The amount you bring will apply to your unpaid or underpaid taxes and you can state exactly what year the IRS will apply the amount to.
9. Don’t Wait for the IRS’ Approval
The IRS takes around 6 to 24 months to review your application. In the meantime, you have to remain patient and keep paying your taxes accordingly while your request is going through review.
How to Get an Offer in Compromise Approved: After the Application
10. Appeal If You’re Rejected
Should you get rejected, the IRS’ Office of Appeals will receive your appeal for reconsideration within a 30 day period. You need to cooperate with your tax specialist in order to turn things around.
11. Stay Disciplined If Your Offer Is Accepted
Once the IRS accepts your offer, and even after you settle the amount in your offer, you need to display good behavior with the IRS for as long as 5 years. This means filing your tax returns, paying your taxes consistently on time, and diligently reporting any changes of address or pertinent information to the IRS.
Any violations, and the IRS can just repeal your offer in compromise agreement and you’ll have to pay the entire amount of the taxes you owe.
These 11 tips should guide you on how to get an offer in compromise approved and help you manage your requirements and your expectations during the entire process. By being mindful of the rules and of your limitations and bolstering your efforts in straightening your tax affairs, you’ll likely get the IRS’ stamp of approval and gain the tax relief you need.
Have you applied for an offer in compromise and was it approved? What do you think went right with your application? Give us any tips we might have missed because your experience can help others.
If you owe back taxes, visit taxreliefcenter.org for more information on tax relief options.
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