How the IRS Offer-In-Compromise Process Works
Before discussing the IRS offer-in-compromise process (or “OIC”), it is helpful to briefly tell you what an offer-in-compromise does. A taxpayer who has a large tax debt which cannot be paid off using either current income or assets is a drain on the economy. The US Government’s policy is that people working and paying their taxes is much better than people who are crushed under their debts, to include tax debts. Thus the IRS has been granted the authority to offer to settle the tax debt with the taxpayer. This debt settlement is a contract between the IRS and taxpayer which settles all unpaid taxes, to include interest and penalties. Hence the name, offer-in-compromise.
One does not simply ask for an offer-in-compromise, however. There is a process in place through which the taxpayer must follow to get relief. I will save the nuts and bolts of an offer for a later time. This blog post is intended to lay out briefly how the offer process works. The IRS offer unit is normally backlogged and so this process can take anywhere from 6 months to almost 2 years. Things do not move fast when making an offer-in-compromise.
First part of the OIC process is the preparation of the paperwork is to be submitted. the offering compromise is an IRS settlement agreement with the taxpayer to pay the tax liability in full for less than what is owed. You will need to fill out IRS forms 656 (the offer form) and 433 (financial statement) as well gather any necessary supporting documents. For many people, filling out this paperwork feels like the financial equivalent of a strip search. The IRS wants to make damned sure you qualify for an offer.
The IRS has a pre-qualifier tool at https://irs.treasury.gov/oic_pre_qualifier/ You might be well advised to do some research there first to see if you qualify before putting together an offer and potentially leaving a roadmap for IRS collections if your offer is rejected.
Submitting the Package
Once the forms are prepared and you have all your supporting documentation, you will send it to the IRS along with a check for $187 (the application fee). The application fee can be waived if you are a low-income taxpayer. You will also send along your first payments towards your offer amount (regardless of your ability to pay, you need to offer something even if just a $1).
The IRS will process the package when received to determine if all the paperwork is there to properly consider the offer. The IRS can refuse to accept the offer for a number of reasons (missing paperwork/application fee for example). Generally, you want to avoid a refusal to process the offer as you normally lose your first payment towards the offer (which will be applied to your unpaid taxes). And you will have to start all over again (and potentially pay another application fee).
Review of the Offer in Compromise
Once past review, an IRS agent – called the offer examiner – will look over the documents provided by the taxpayer and determine if he or she agrees with the numbers provided. It is not uncommon for the offer examiner to contact the taxpayer and request additional documentation. It is not that the IRS does not trust you; the examiner often just needs information to support his or her position. I try hard to be very accommodating to the examiner, as you get more bees with honey than vinegar.
to support the amounts claimed on these forms . This is not unusual it’s not that the Irish doesn’t trust you is that they that when you settle a tax debt for less than the full amount The IRS employee needs to show that in fact the taxpayer cannot afford to pay the full amount .
Once the examiner has reviewed the paperwork and either has all the information they need or the taxpayer has refused to give additional information at which point the examiner will make a judgment as to whether to accept it or not.
Approval, Counteroffer or Rejection of the Offer
Once the offer examiner looks at the offer, the examiner has three options: accept, reject or make a counter-offer.
If the offer is accepted then you are almost home free! The IRS attaches some strings to the terms of the offer but you are 95% of the way there with acceptance. One of the terms is that you maintain tax compliance for five years (meaning file and pay on time). Still, if you get an offer your offer accepted than the process ends here for you.
The offer could be rejected. Sometimes the examiner will reject your offer out of hand. You will be given an option to request an appeal to the IRS Appeals Division. IRS Appeals is an opportunity to have an independent person review the IRS examiner’s determination. The outcome of appeals really depends on the strength of your offer. Usually if you have a good offer and reasonable minds could differ on certain points then you can get a deal. If your offer is unreasonable then don’t be surprised if you don’t get much satisfaction.
Finally, the offer examiner could counter-offer. Very often the offer has its good points and bad points. The examiner will tell you what he or she believes the offer amount should be. You will then be given an opportunity to convince the examiner that you were right, see if you can’t negotiate a compromise or reject the counter-offer. If you do reject the counter-offer you can see if you can get your offer approved at IRS Appeals just as if your offer was rejected out of hand.
What I’ve described is just the general overview of how it offer-in-compromise process works. If you have any questions or concerns whether for yourself or someone you know then give my office a call (see details below). I will be glad to talk about how an OIC might help you get the IRS out of your life once and for all.
I am Maine’s IRS Problem Solver. My firm helps Maine taxpayers in trouble. If you or someone you know in Southern Maine wants more information on how to resolve your unpaid taxes, please feel free to contact me directly at 207-502-7181 or by filing out my contact form. A Maine tax attorney can help you consider your options.
James D. Wade, Esq.
Law Office of James D. Wade
57 Portland Road, Unit 3
Kennebunk, ME 04043