An offer in compromise (with doubt as to collectability) to the IRS should be equal to, or greater than what the IRS calculates as the taxpayer's reasonable collection potential.
In 2019, the IRS received 54,225 offers in compromise as well as accepted just 17,890 of them– that's a success rate of roughly 33%. Specialist tax obligation relief firms usually have acceptance rates of 90% and also greater.
Apply With the New Form 656
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability or doing so creates a financial hardship. We consider your unique set of facts and circumstances: Ability to pay.
The average attorney fees for an offer in compromise fall between $3,500 and $6,500, although using an attorney that charges an hourly rate could result in a higher cost.
But statistically, the odds of getting an IRS offer in compromise are pretty low. In fact, the IRS rejected 67% of all applications for offers in compromise in 2019. It's not impossible, though.
There are 2 basic Offer in Compromise formulas:
On a 5-month repayment plan: (Available Monthly Income x 12) + Value of Personal Assets. On a 24-month repayment plan: (Available Monthly Income x 24) + Value of Personal Assets.
What is an Offer in Compromise? An “Offer in Compromise” is a little-known but remarkably effective way that thousands of people in trouble with the IRS routinely eliminate tens of thousands of dollars in tax debts. It is a federal program that allows you to settle your tax debt for less than the full amount you owe.
In most cases, the IRS won't accept an OIC unless the amount offered by a taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer's ability to pay.
If you owe more than $50,000, you may still qualify for an installment agreement, but you will need to complete a Collection Information Statement, Form 433-A. The IRS offers various electronic payment options to make a full or partial payment with your tax return.
Taxpayers may still qualify for an installment agreement if they owe more than $25,000, but a Form 433F, Collection Information Statement (CIS), is required to be completed before an installment agreement can be considered.
Currently, the IRS offer in compromise programs does not affect your credit score. However, if you're considering filing for bankruptcy then it will likely have an adverse effect on your credit score and there are other factors that can also negatively impact a person's number (late payments, loans, etc).
Taxpayers who qualify for the program are those ready to pay their tax debt through installments paid over a specific time span, and decided based on a repayment structure. The other requisites for qualification are: Having IRS debt of fifty thousand dollars or less, or the ability to repay most of the amount.
One-time forgiveness, otherwise known as penalty abatement, is an IRS program that waives any penalties facing taxpayers who have made an error in filing an income tax return or paying on time. This program isn't for you if you're notoriously late on filing taxes or have multiple unresolved penalties.
In most cases, the IRS takes about six months to decide whether to accept or reject your offer in compromise. However, if you have to dispute or appeal their decision, the process can take much longer.
The reasonable collection potential is the amount of money the IRS thinks they can collect from you for your tax debts. It is the liquidation value of your assets plus your monthly disposable income.
The IRS offers payment alternatives if taxpayers can't pay what they owe in full. A short-term payment plan may be an option. Taxpayers can ask for a short-term payment plan for up to 120 days. A user fee doesn't apply to short-term payment plans.
Generally, under IRC § 6502, the IRS will have 10 years to collect a liability from the date of assessment. After this 10-year period or statute of limitations has expired, the IRS can no longer try and collect on an IRS balance due.
If you want to settle tax debt yourself, simply download the IRS Form 656 Booklet. In includes Form 656 and Form 433-A form that you need to fill out for your financial disclosure. Complete the forms and send them in to file on your own.
The IRS rarely forgives tax debts. Form 656 is the application for an “offer in compromise” to settle your tax liability for less than what you owe. Such deals are only given to people experiencing true financial hardship.
COMPLETE IRS & TAX REPRESENTATION
The two most practical reasons for filing an Offer-in-Compromise (OIC) with IRS are: To prevent further IRS collections from occurring (i.e. wage garnishments, bank accounts, seizures) To limit the amount of out-of-pocket expense to satisfy the tax debt.
The Fresh Start Initiative Program provides tax relief to select taxpayers who owe money to the IRS. It is a response by the Federal Government to the predatory practices of the IRS, who use compound interest and financial penalties to punish taxpayers with outstanding tax debt.
You must provide a written statement explaining why the tax debt or portion of the tax debt is incorrect. In addition, you must provide supporting documentation or evidence that will help the IRS identify the reason(s) you doubt the accuracy of the tax debt.
If we cannot approve your relief over the phone, you may request relief in writing with Form 843, Claim for Refund and Request for Abatement. To reduce or remove an estimated tax penalty, see: Underpayment of Estimated Tax by Individuals Penalty. Underpayment of Estimated Tax by Corporations Penalty.
The IRS can no longer simply take your bank account, automobile, or business, or garnish your wages without giving you written notice and an opportunity to challenge its claims. When you challenge an IRS collection action, all collection activity must come to a halt during your administrative appeal.