Employment and Criminal Lawyer

What's an Offer in Compromise?

The "Offer in Compromis" is a well-known, but highly effective method that has helped thousands of taxpayers in IRS trouble to eliminate tax debts totaling tens of thousands of dollars. This federal program allows you to settle tax debts for less than what you owe. You may be able to settle your tax debt for a fraction of the full amount, especially if your family is low-income.

Here's how it works. The IRS will take $100,000 from you in back taxes. The money is not available to you. You could lose your home or your wages if the feds take over your finances.

You make an offer to the IRS that you believe they won't accept.

A few forms are filled out. The IRS responds very politely to your request. I'll give $10. The rest will be swallowed ($99,990). That's fair, isn't it?"

You take your time. You hold your breath. You pray. The IRS responds by saying, "Why sure, Mr. Smith, thank you for the crisp new Alexander Hamilton." The rest will be forgiven.

In an interview with Debt.org, Professor Erin H. Stearns said that it sounds too good to sound real but is the truth. You may be able to pay $10 if you owe $100,000

Many taxpayers have the option to use an offer of compromise to resolve their federal tax debts. A person who owes money to the Internal Revenue Service (IRS), but can't afford the full amount, may be able to offer a lower, more affordable settlement to the IRS. This is called an offer in compromise (OIC). This offer could be a lump-sum payment or a series over several months. The IRS will forgive any remaining debt if it accepts the OIC, and the taxpayer makes the payments as agreed.

Some people may not be eligible for the OIC program. The OIC program is only available to taxpayers who have filed all of their tax returns. They cannot have a bankruptcy case open. They will also need to make an initial payment as well as pay an application fee. Low-income applicants do not need to pay an initial fee. To determine if they are eligible, taxpayers can use the IRS Pre-Qualifier tool. The IRS provides all the forms and instructions needed for making an OIC on its website; find "Form 656-B, Booklet" at www.irs.gov/payments/offer-in-compromise.

A person's life can be drastically improved by an OIC. Dennis Dobos, an attorney who runs the Legal Aid Society of Cleveland’s Low Income Taxpayer Clinic says OICs provide much-needed relief for his clients.

Dobos states that the program "has the potential to engage so many taxpayers." It allows people to make new financial and emotional starts. People can also pursue other goals without worrying about IRS debt. A person's overall stability and health can be improved by debt relief.

What is the Acceptance rate?

OIC is becoming more popular among people of all income levels and ages. The IRS accepted 25,000 out of 62,000 offered Offers in Compromise in 2017. This is a 40% approval rate and amounts to nearly $256 million. The average dollar amount accepted was $10,234.

Professor Stearns stated that it's a relatively unknown tool. It's the gold standard in tax resolution work.

Let's take a closer look to see if we can make this Houdini escape from IRS Wheel of Misfortune.

Pre-Qualifiers on Compromise

Taxes are vital for both the government and public expenditures. To be eligible for a tax settlement, you must meet certain pre-qualifications:

Before you submit an offer to IRS, make sure that you are eligible and know what the IRS looks for.

Your reason for asking for a compromise is the first test of eligibility.

An IRS offer in compromise will be considered only if it is made for one of these reasons:

• The IRS may not have correctly calculated the amount that you owe.
• It is not certain that the debt can be fully collected. This means that your assets and income are lower than what you owe.
• You can correct the debt, but you would be in severe economic hardship if you didn't pay it all. This is effective tax administration.

The IRS will consider other factors if you make an offer in compromise based upon the second or third reason.

The IRS looks at these four components to determine if you are able and unable to pay.

• Your ability to pay
• Your income
• Your expenses
• Your assets

The IRS accepts offers up to the maximum amount that you can pay within a reasonable time.

If any of these are true, it will reject your offer.

• You are currently in an open bankruptcy proceeding.
• You have not filed all required federal tax returns.
• You have not made the estimated tax payments.
• If you are self-employed and have employees, but have not submitted federal tax deposits,

Use the IRS's pre-qualifier tool to determine if you are eligible for a compromise agreement. Even if your offer is approved, it is not guaranteed.

According to the IRS, the Offer in Compromise program may not be suitable for all taxpayers. According to the IRS, taxpayers should explore all payment options before making an offer of compromise.

If a taxpayer can pay the tax due through installment agreements or other means, they won't be eligible for an offer in compromise (OIC). The IRS states that it will not accept an Offer in Compromise unless the offered amount is equal to or greater than the reasonable collection possibility.

These are the signs that you are a great candidate

• A retiree with a fixed income.
• The IRS is causing you legal problems. The IRS will often settle tax debt rather than get involved in a lawsuit.
• Although you may be facing bankruptcy, your main problem is unpaid taxes.
• It is impossible to pay all your tax liabilities.
• Federal low-income guidelines are not so low anymore: less than $51,950 for a three-person family, less than $73,550 for five people, and so forth.

The feds will consider your facts and circumstances in all cases. This includes income, assets, and ability to pay.

According to the IRS, an offer in compromise is generally approved if the amount offered is the maximum we can expect within a reasonable time.

Check here to see whether you meet their guidelines: www.irs.gov/advocate/low-income-taxpayer-clinics/low-income-taxpayer-clinic-income-eligibility-guidelines

What is the minimum offer amount for an OIC?

It's important to offer as little as you can. It's not always easy. The IRS will accept a small amount of your financial situation. You will need to disclose this on Form 433 A (for wage-earners or the self-employed) and 433 B (for businesses).

Be detailed Be prepared to disclose:

• If you have declared bankruptcy
• How much and when you could receive the money if you are the beneficiary of an estate, trust, or life insurance policy
• What's inside your safe deposit box?
• Your bank accounts, investments, and available credit. Life insurance policies with a cash value.
• Real estate, personal vehicles, as well as intangible assets like domain names, patents, and licenses that still have value

Another bad news is that the IRS will generally not allow you to count college expenses or private school expenses, charitable donations, voluntary retirement contributions, or payments on unsecured loans.

Once you have done this, the IRS will calculate the minimum offer. It will require your assets and a year-to-two-year's worth of income in addition to what it considers acceptable expenses. The IRS will require you to pay some amount even if your expenses and secured debt exceed your assets.

Send an offer

You are responsible for filling out and including multiple forms when you submit a request for an offer in compromise. You must also include a collection statement for individuals or businesses in addition to the offer itself.

You will need to include a $150 application fee and the first payment for your offer in most cases.

Your initial payment should not exceed 20% of the total amount you are offering to pay. If you are notified in writing that your offer was accepted, you will need to pay the balance in five or fewer payments.

If you agree to pay over a monthly payment plan, your first payment should reflect the amount in your plan. You should make this payment every month until the IRS notifies you. If your offer has been accepted by the IRS, you can continue to make monthly payments until your balance has been paid in full. This should not take more than 24 months from the acceptance of your offer.

If your offer is based upon doubts of liability, you don't need to pay a fee.

If you meet the criteria for Low-Income Certification, you don't have to pay either the initial down payment or the application fee. It depends on your family size and household income as well as your location. If your household is three members and your monthly income is less or equal to $3997, you will be exempt from the initial fees.

You can find step-by-step instructions as well as all blank forms including those for low-income qualifications in the IRS booklet on offers in compromise.

Rejection of an OIC: Reasons

It pays to be careful. Rejections are common.

The government feels the offer is too low and will pay you in full for future earnings. In such cases, the IRS will inform you of what it believes you can pay.

Failure to provide sufficient information can be a sign of a poor financial situation.

Failure to make tax payments on time for the current fiscal year. If you continue to fall behind in your taxes payment, you are a poor risk to the OIC.

You have been convicted of a serious offense.

Optional Rejected Offers

The IRS will accept less than half of the compromise offers it receives. Your pitch is likely to be rejected.

Two ways can you respond to an IRS rejection of an OIC. The first is to submit a resubmission of your offer. A new Form 656 is not required if you submit it within a month of the original offer. It's just a letter increasing your offer.

You can fill out a new form 656 if you have to wait longer or if the offer has been significantly modified. You can appeal the rejection by filing Form 13711 within 30 calendar days of receiving the rejection letter. In this form, you will identify the parts that you disagree with and explain your reasons.

Hire an attorney

Although you can file your application, Professor Stearns advises against it. A Low-Income Taxpayer Clinic can help you complete an OIC if your income is eligible. These federally funded clinics are located in all 50 states, with at least one in each state except North Dakota.

You might consider hiring a tax resolution company if you fail the income test.

Many reputable tax firms exist. Oxford Tax Partners is a Chicago-based firm with many offices across the country. They generally get good customer reviews. Travis W. Watkins, Oklahoma City, and Dallas are also good customers.

There are many good tax attorneys in cities and towns. The Better Business Bureau can help you find a good firm. Check out online reviews. Ask your friends.

Beware of those midnight radio advertisements. It is possible to be scammed.

Stearns stated that OICs were the bread and butter for late-night radio advertisements. The ads state: "If you owe $10,000, please call us. Are you looking for a fresh start? "Fresh start" is code for Offer in Compromis.

J.K. Harris was once the largest tax resolution company in the country, with 325 offices across the country. This is a cautionary tale, but it's not the only one. After being sued by 20 state attorneys generals, the company was forced to close its doors in 2012. The lawsuit accused it of charging clients unprofessional fees and making false promises.

Stearns stated that the going rate at tax resolution firms is $5,000 to $8,000 for a retainer. Many of them work just fine. Some of them are not. This is a tedious task of filling out forms. It's a great deal if it costs $20,000 and you owe 100,00. It's not if you owe $10,000.

People can be taken for a ride if the place isn't reputable."

Appealing against a Rejection

The IRS accepts only about 25% of all offers. Therefore, it is likely that your offer will not be accepted.

You can appeal the IRS decision if they reject your offer of compromise. Within 30 days of the rejection date, you can file an appeal request.

What are the Downsides of an OIC?

The IRS can be difficult to comply with if you provide too much information. But that's just one potential problem. It can take as long as a year to complete the process, and several months if you appeal.

For the OIC to be finalized, you must keep up your tax compliance for five years. Even a slight slip-up can give the IRS the right to revoke the agreement or demand payment for all the liabilities you thought you had avoided.

Also, an OIC can suspend the IRS' 10-year statute to collect taxes. The IRS has four years to collect taxes if it has been six years since it assessed taxes against your property. The IRS has four years to collect on you even if your OIC is not accepted after it takes one year.

Fresh Start Initiative

This isn't nearly as bad as it was before. The IRS has expanded its Fresh Start Initiative in 2012 and OIC acceptance rates have risen significantly from the 25-30% range.

This initiative raised the threshold to place a tax lien from $5,000 - $10,000. Some penalties that could be added to taxes owed were waived by the initiative. It relaxed the eligibility requirements to pay back taxes on installment plans and made it easier for OIC to be met.

Other options

A compromise is often the best way to get rid of tax debt that you cannot afford to pay. There are other options available to reduce your financial burden and get back on track.

You can explore debt solutions such as consolidation and settlement if you are not eligible or rejected by the offer in compromise. They can often save you money on other debts and free up cash for paying down IRS debts.

Debt Consolidation & Debt Settlement

Although debt consolidation and debt settlement are often referred to as one another, they are two entirely different terms.

Consolidating debt means that you take out one loan to pay multiple creditors. Although this is a good way to eliminate debt, there are some downsides.

A debt settlement is when a creditor receives a lump-sum payment for less than the amount owed. This method of getting out of debt can have severe consequences.

Seek professional help if you are unable to pay your bills. There are ways to get out of debt.

Compromise Success Stories

An elderly couple receiving Social Security is a typical example. They don't have a house. Stearns stated that they are renting with a moderate vehicle and very low assets.

Professor Stearns stated that if the IRS decides it is not possible to collect the couple's $25,000 back taxes, penalty, and interest, then "we will offer $10 as a courtesy to make $25,000 disappear because $1 just seems insulting."

These offers are routinely approved by the IRS.

The IRS considers geography. The federal algorithms state that a person must have $900 per month to live in the least populated county in Colorado. The number is higher in New York City and Marin County, California.

A collateral agreement with IRS is another option.

The IRS will forgive significant debts if you are a 30-something earning potential with a master's degree. If you agree to make future payments, when you have a higher income, the IRS might forgive you.

Amazing things can happen if you meet the low-income guidelines. Professor Stearns' Denver clinic accepts 80% of OICs, which is double the national average. This allows for IRS debts to be erased from $25,000 to $250,000.

Advertisements about "settling tax debt for pennies per dollar" usually refer to the process of applying to an IRS offer of compromise. This is an IRS program that helps people pay at most some of their tax debt. However, statistically speaking, the chances of receiving an IRS offer in compromise is very slim. In 2019, 67% of all offers in compromise were rejected by the IRS.

However, it's possible. This is how an IRS offer-in-compromise works. We explain what you need to do to be eligible and what you need to know about this program.

What is the IRS's offer for compromise?

An IRS program called an offer in compromise allows taxpayers to settle IRS tax debts for less than what they owe.

To apply for a taxpayer, they must meet certain qualifications. The IRS rejects most applications.

How to request an IRS offer in compromise

Three parts make up an application for an IRS offer in compromise.

Completed IRS forms 656 and 433-A. You can file Form 656L if you feel the tax debt is not yours.

If you meet the IRS guidelines for low income, a $205 application fee may be waived.

You are required to make a payment towards the new balance.

When you submit an IRS offer in compromise, you will need to give a lot more information about your income, assets, cash, and other debts, as well your rent, utilities, and groceries.

Although you can hire qualified tax professionals or tax relief companies to assist you with the paperwork, it is not necessary and may cost more than what you are trying to save on taxes.

Who is eligible for an IRS offer of compromise?

Two hurdles exist in the offer compromise process. You must qualify to apply and get the IRS to accept your offer. You can use an online tool from the IRS to determine your eligibility.

If any of these are true, the agency will return your application.

• Do not forget to include all the information required for the application.
• You are behind in filing your tax returns
• You have not received a bill for at most one tax debt in your offer.
• You have not made all the estimated tax payments for this year.
• You are currently in an open bankruptcy proceeding.
• While you wait for an answer, you stop paying taxes and file your tax returns.
• Your case has been sent to the Justice Department by the IRS
• Court-ordered collection of tax debt.
• The application fee ($205 for most applicants; waived for low-income applicants) is not included.

After you have resolved the issues, the agency will send you a rejection letter.

How the IRS decides whether or not to accept a compromise offer

To calculate your "reasonable collecting potential," the IRS uses financial information to determine how much it can collect from you now and in the future.

When calculating the RCP, the IRS considers your assets, cars, and bank accounts as well as your property. If the amount offered is less than or equal to the RCP, the IRS will not accept your compromise offer.

Math aside, there are 3 reasons that the IRS might make an offer in compromise.

It is a real legal dispute over whether or not your tax debt exists and how much.

You would be in financial hardship if you didn't pay the full amount or it would be unfair and inequitable if you had to do so in exceptional circumstances.

The IRS doesn't believe it can ever collect fully from you.

What you pay

A compromise offer by the IRS includes two options to pay your new or improved tax bill.

1. Lump sum

Within five months, pay

Your application must contain 20% of the offer amount in addition to the application fee. The IRS cannot rescind your offer. However, the IRS will apply this money to your tax bill.

2. Payment plan

Within 24 months, pay

The application fee and the first payment must be sent together with the application. The IRS cannot remit this money, even if they reject your offer. However, the IRS will only apply it to your tax bill.

While you wait for the IRS's decision on whether to make you an offer of compromise, you can still make payments.

Additional information about IRS Offers in Compromise

Although the process is complex, there are key points to remember:

The $205 fee is non-refundable for most applicants. Low-income taxpayers may be eligible to waive it.

Initial payment is required. It's non-refundable. If you are paying in less than five installments, your initial payment must equal 20%. Your first monthly installment must equal six monthly installments.

The IRS will suspend collection activities once you have filed your application. The IRS may file or retain tax liens until you accept its offer.

The IRS used to be able to keep your tax refund and use it towards your tax debt. The IRS announced on November 1, 2021, that it will no longer be able to recover refunds from the year in which the OIC has been accepted. However, there is one caveat. You may have to return an OIC if you are refunded via amended returns.

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You may be eligible to request an offset bypass refund (OBR) if you are still waiting for an OIC agreement from IRS.

To qualify for the offset bypass refund (OBR), you will need to work with the IRS to show economic hardship. You may not get the entire amount. More information is available at the IRS.

Some information regarding your offer of compromise may be made public. The IRS has public inspection files that include information about offers in compromise. These files include the name of the taxpayer, address, ZIP code, liability amount, and terms.

You can appeal to the IRS within 30 days if your offer is rejected by them. You can access an online guide from the IRS to help you.

Other options

If you are unable to accept an offer of compromise or the IRS rejects it, there may be other options available through the IRS for tax relief. These include an installment plan or asking for "currently not collectible".

Choose the tax relief company that is best for you

We have weighed the pros and cons of major players in this space.

What's an Offer in Compromise?

The "Offer in Compromis" is a well-known, but highly effective method that has helped thousands of taxpayers in IRS trouble to eliminate tax debts totaling tens of thousands of dollars. This federal program allows you to settle tax debts for less than what you owe. You may be able to settle your tax debt for a fraction of the full amount, especially if your family is low-income.

Here's how it works. The IRS will take $100,000 from you in back taxes. The money is not available to you. You could lose your home or your wages if the feds take over your finances.

You make an offer to the IRS that you believe they won't accept.

A few forms are filled out. The IRS responds very politely to your request. I'll give $10. The rest will be swallowed ($99,990). That's fair, isn't it?"

You take your time. You hold your breath. You pray. The IRS responds by saying, "Why sure, Mr. Smith, thank you for the crisp new Alexander Hamilton." The rest will be forgiven.

In an interview with Debt.org, Professor Erin H. Stearns said that it sounds too good to sound real but is the truth. You may be able to pay $10 if you owe $100,000

Many taxpayers have the option to use an offer of compromise to resolve their federal tax debts. A person who owes money to the Internal Revenue Service (IRS), but can't afford the full amount, may be able to offer a lower, more affordable settlement to the IRS. This is called an offer in compromise (OIC). This offer could be a lump-sum payment or a series over several months. The IRS will forgive any remaining debt if it accepts the OIC, and the taxpayer makes the payments as agreed.

Some people may not be eligible for the OIC program. The OIC program is only available to taxpayers who have filed all of their tax returns. They cannot have a bankruptcy case open. They will also need to make an initial payment as well as pay an application fee. Low-income applicants do not need to pay an initial fee. To determine if they are eligible, taxpayers can use the IRS Pre-Qualifier tool. The IRS provides all the forms and instructions needed for making an OIC on its website; find "Form 656-B, Booklet" at www.irs.gov/payments/offer-in-compromise.

A person's life can be drastically improved by an OIC. Dennis Dobos, an attorney who runs the Legal Aid Society of Cleveland’s Low Income Taxpayer Clinic says OICs provide much-needed relief for his clients.

Dobos states that the program "has the potential to engage so many taxpayers." It allows people to make new financial and emotional starts. People can also pursue other goals without worrying about IRS debt. A person's overall stability and health can be improved by debt relief.

What is the Acceptance rate?

OIC is becoming more popular among people of all income levels and ages. The IRS accepted 25,000 out of 62,000 offered Offers in Compromise in 2017. This is a 40% approval rate and amounts to nearly $256 million. The average dollar amount accepted was $10,234.

Professor Stearns stated that it's a relatively unknown tool. It's the gold standard in tax resolution work.

Let's take a closer look to see if we can make this Houdini escape from IRS Wheel of Misfortune.

Pre-Qualifiers on Compromise

Taxes are vital for both the government and public expenditures. To be eligible for a tax settlement, you must meet certain pre-qualifications:

Before you submit an offer to IRS, make sure that you are eligible and know what the IRS looks for.

Your reason for asking for a compromise is the first test of eligibility.

An IRS offer in compromise will be considered only if it is made for one of these reasons:

• The IRS may not have correctly calculated the amount that you owe.
• It is not certain that the debt can be fully collected. This means that your assets and income are lower than what you owe.
• You can correct the debt, but you would be in severe economic hardship if you didn't pay it all. This is effective tax administration.

The IRS will consider other factors if you make an offer in compromise based upon the second or third reason.

The IRS looks at these four components to determine if you are able and unable to pay.

• Your ability to pay
• Your income
• Your expenses
• Your assets

The IRS accepts offers up to the maximum amount that you can pay within a reasonable time.

If any of these are true, it will reject your offer.

• You are currently in an open bankruptcy proceeding.
• You have not filed all required federal tax returns.
• You have not made the estimated tax payments.
• If you are self-employed and have employees, but have not submitted federal tax deposits,

Use the IRS's pre-qualifier tool to determine if you are eligible for a compromise agreement. Even if your offer is approved, it is not guaranteed.

According to the IRS, the Offer in Compromise program may not be suitable for all taxpayers. According to the IRS, taxpayers should explore all payment options before making an offer of compromise.

If a taxpayer can pay the tax due through installment agreements or other means, they won't be eligible for an offer in compromise (OIC). The IRS states that it will not accept an Offer in Compromise unless the offered amount is equal to or greater than the reasonable collection possibility.

These are the signs that you are a great candidate

• A retiree with a fixed income.
• The IRS is causing you legal problems. The IRS will often settle tax debt rather than get involved in a lawsuit.
• Although you may be facing bankruptcy, your main problem is unpaid taxes.
• It is impossible to pay all your tax liabilities.
• Federal low-income guidelines are not so low anymore: less than $51,950 for a three-person family, less than $73,550 for five people, and so forth.

The feds will consider your facts and circumstances in all cases. This includes income, assets, and ability to pay.

According to the IRS, an offer in compromise is generally approved if the amount offered is the maximum we can expect within a reasonable time.

Check here to see whether you meet their guidelines: www.irs.gov/advocate/low-income-taxpayer-clinics/low-income-taxpayer-clinic-income-eligibility-guidelines

What is the minimum offer amount for an OIC?

It's important to offer as little as you can. It's not always easy. The IRS will accept a small amount of your financial situation. You will need to disclose this on Form 433 A (for wage-earners or the self-employed) and 433 B (for businesses).

Be detailed Be prepared to disclose:

• If you have declared bankruptcy
• How much and when you could receive the money if you are the beneficiary of an estate, trust, or life insurance policy
• What's inside your safe deposit box?
• Your bank accounts, investments, and available credit. Life insurance policies with a cash value.
• Real estate, personal vehicles, as well as intangible assets like domain names, patents, and licenses that still have value

Another bad news is that the IRS will generally not allow you to count college expenses or private school expenses, charitable donations, voluntary retirement contributions, or payments on unsecured loans.

Once you have done this, the IRS will calculate the minimum offer. It will require your assets and a year-to-two-year's worth of income in addition to what it considers acceptable expenses. The IRS will require you to pay some amount even if your expenses and secured debt exceed your assets.

Send an offer

You are responsible for filling out and including multiple forms when you submit a request for an offer in compromise. You must also include a collection statement for individuals or businesses in addition to the offer itself.

You will need to include a $150 application fee and the first payment for your offer in most cases.

Your initial payment should not exceed 20% of the total amount you are offering to pay. If you are notified in writing that your offer was accepted, you will need to pay the balance in five or fewer payments.

If you agree to pay over a monthly payment plan, your first payment should reflect the amount in your plan. You should make this payment every month until the IRS notifies you. If your offer has been accepted by the IRS, you can continue to make monthly payments until your balance has been paid in full. This should not take more than 24 months from the acceptance of your offer.

If your offer is based upon doubts of liability, you don't need to pay a fee.

If you meet the criteria for Low-Income Certification, you don't have to pay either the initial down payment or the application fee. It depends on your family size and household income as well as your location. If your household is three members and your monthly income is less or equal to $3997, you will be exempt from the initial fees.

You can find step-by-step instructions as well as all blank forms including those for low-income qualifications in the IRS booklet on offers in compromise.

Rejection of an OIC: Reasons

It pays to be careful. Rejections are common.

The government feels the offer is too low and will pay you in full for future earnings. In such cases, the IRS will inform you of what it believes you can pay.

Failure to provide sufficient information can be a sign of a poor financial situation.

Failure to make tax payments on time for the current fiscal year. If you continue to fall behind in your taxes payment, you are a poor risk to the OIC.

You have been convicted of a serious offense.

Optional Rejected Offers

The IRS will accept less than half of the compromise offers it receives. Your pitch is likely to be rejected.

Two ways can you respond to an IRS rejection of an OIC. The first is to submit a resubmission of your offer. A new Form 656 is not required if you submit it within a month of the original offer. It's just a letter increasing your offer.

You can fill out a new form 656 if you have to wait longer or if the offer has been significantly modified. You can appeal the rejection by filing Form 13711 within 30 calendar days of receiving the rejection letter. In this form, you will identify the parts that you disagree with and explain your reasons.

Hire an attorney

Although you can file your application, Professor Stearns advises against it. A Low-Income Taxpayer Clinic can help you complete an OIC if your income is eligible. These federally funded clinics are located in all 50 states, with at least one in each state except North Dakota.

You might consider hiring a tax resolution company if you fail the income test.

Many reputable tax firms exist. Oxford Tax Partners is a Chicago-based firm with many offices across the country. They generally get good customer reviews. Travis W. Watkins, Oklahoma City, and Dallas are also good customers.

There are many good tax attorneys in cities and towns. The Better Business Bureau can help you find a good firm. Check out online reviews. Ask your friends.

Beware of those midnight radio advertisements. It is possible to be scammed.

Stearns stated that OICs were the bread and butter for late-night radio advertisements. The ads state: "If you owe $10,000, please call us. Are you looking for a fresh start? "Fresh start" is code for Offer in Compromis.

J.K. Harris was once the largest tax resolution company in the country, with 325 offices across the country. This is a cautionary tale, but it's not the only one. After being sued by 20 state attorneys generals, the company was forced to close its doors in 2012. The lawsuit accused it of charging clients unprofessional fees and making false promises.

Stearns stated that the going rate at tax resolution firms is $5,000 to $8,000 for a retainer. Many of them work just fine. Some of them are not. This is a tedious task of filling out forms. It's a great deal if it costs $20,000 and you owe 100,00. It's not if you owe $10,000.

People can be taken for a ride if the place isn't reputable."

Appealing against a Rejection

The IRS accepts only about 25% of all offers. Therefore, it is likely that your offer will not be accepted.

You can appeal the IRS decision if they reject your offer of compromise. Within 30 days of the rejection date, you can file an appeal request.

What are the Downsides of an OIC?

The IRS can be difficult to comply with if you provide too much information. But that's just one potential problem. It can take as long as a year to complete the process, and several months if you appeal.

For the OIC to be finalized, you must keep up your tax compliance for five years. Even a slight slip-up can give the IRS the right to revoke the agreement or demand payment for all the liabilities you thought you had avoided.

Also, an OIC can suspend the IRS' 10-year statute to collect taxes. The IRS has four years to collect taxes if it has been six years since it assessed taxes against your property. The IRS has four years to collect on you even if your OIC is not accepted after it takes one year.

Fresh Start Initiative

This isn't nearly as bad as it was before. The IRS has expanded its Fresh Start Initiative in 2012 and OIC acceptance rates have risen significantly from the 25-30% range.

This initiative raised the threshold to place a tax lien from $5,000 - $10,000. Some penalties that could be added to taxes owed were waived by the initiative. It relaxed the eligibility requirements to pay back taxes on installment plans and made it easier for OIC to be met.

Other options

A compromise is often the best way to get rid of tax debt that you cannot afford to pay. There are other options available to reduce your financial burden and get back on track.

You can explore debt solutions such as consolidation and settlement if you are not eligible or rejected by the offer in compromise. They can often save you money on other debts and free up cash for paying down IRS debts.

Debt Consolidation & Debt Settlement

Although debt consolidation and debt settlement are often referred to as one another, they are two entirely different terms.

Consolidating debt means that you take out one loan to pay multiple creditors. Although this is a good way to eliminate debt, there are some downsides.

A debt settlement is when a creditor receives a lump-sum payment for less than the amount owed. This method of getting out of debt can have severe consequences.

Seek professional help if you are unable to pay your bills. There are ways to get out of debt.

Compromise Success Stories

An elderly couple receiving Social Security is a typical example. They don't have a house. Stearns stated that they are renting with a moderate vehicle and very low assets.

Professor Stearns stated that if the IRS decides it is not possible to collect the couple's $25,000 back taxes, penalty, and interest, then "we will offer $10 as a courtesy to make $25,000 disappear because $1 just seems insulting."

These offers are routinely approved by the IRS.

The IRS considers geography. The federal algorithms state that a person must have $900 per month to live in the least populated county in Colorado. The number is higher in New York City and Marin County, California.

A collateral agreement with IRS is another option.

The IRS will forgive significant debts if you are a 30-something earning potential with a master's degree. If you agree to make future payments, when you have a higher income, the IRS might forgive you.

Amazing things can happen if you meet the low-income guidelines. Professor Stearns' Denver clinic accepts 80% of OICs, which is double the national average. This allows for IRS debts to be erased from $25,000 to $250,000.

Advertisements about "settling tax debt for pennies per dollar" usually refer to the process of applying to an IRS offer of compromise. This is an IRS program that helps people pay at most some of their tax debt. However, statistically speaking, the chances of receiving an IRS offer in compromise is very slim. In 2019, 67% of all offers in compromise were rejected by the IRS.

However, it's possible. This is how an IRS offer-in-compromise works. We explain what you need to do to be eligible and what you need to know about this program.

What is the IRS's offer for compromise?

An IRS program called an offer in compromise allows taxpayers to settle IRS tax debts for less than what they owe.

To apply for a taxpayer, they must meet certain qualifications. The IRS rejects most applications.

How to request an IRS offer in compromise

Three parts make up an application for an IRS offer in compromise.

Completed IRS forms 656 and 433-A. You can file Form 656L if you feel the tax debt is not yours.

If you meet the IRS guidelines for low income, a $205 application fee may be waived.

You are required to make a payment towards the new balance.

When you submit an IRS offer in compromise, you will need to give a lot more information about your income, assets, cash, and other debts, as well your rent, utilities, and groceries.

Although you can hire qualified tax professionals or tax relief companies to assist you with the paperwork, it is not necessary and may cost more than what you are trying to save on taxes.

Who is eligible for an IRS offer of compromise?

Two hurdles exist in the offer compromise process. You must qualify to apply and get the IRS to accept your offer. You can use an online tool from the IRS to determine your eligibility.

If any of these are true, the agency will return your application.

• Do not forget to include all the information required for the application.
• You are behind in filing your tax returns
• You have not received a bill for at most one tax debt in your offer.
• You have not made all the estimated tax payments for this year.
• You are currently in an open bankruptcy proceeding.
• While you wait for an answer, you stop paying taxes and file your tax returns.
• Your case has been sent to the Justice Department by the IRS
• Court-ordered collection of tax debt.
• The application fee ($205 for most applicants; waived for low-income applicants) is not included.

After you have resolved the issues, the agency will send you a rejection letter.

How the IRS decides whether or not to accept a compromise offer

To calculate your "reasonable collecting potential," the IRS uses financial information to determine how much it can collect from you now and in the future.

When calculating the RCP, the IRS considers your assets, cars, and bank accounts as well as your property. If the amount offered is less than or equal to the RCP, the IRS will not accept your compromise offer.

Math aside, there are 3 reasons that the IRS might make an offer in compromise.

It is a real legal dispute over whether or not your tax debt exists and how much.

You would be in financial hardship if you didn't pay the full amount or it would be unfair and inequitable if you had to do so in exceptional circumstances.

The IRS doesn't believe it can ever collect fully from you.

What you pay

A compromise offer by the IRS includes two options to pay your new or improved tax bill.

1. Lump sum

Within five months, pay

Your application must contain 20% of the offer amount in addition to the application fee. The IRS cannot rescind your offer. However, the IRS will apply this money to your tax bill.

2. Payment plan

Within 24 months, pay

The application fee and the first payment must be sent together with the application. The IRS cannot remit this money, even if they reject your offer. However, the IRS will only apply it to your tax bill.

While you wait for the IRS's decision on whether to make you an offer of compromise, you can still make payments.

Additional information about IRS Offers in Compromise

Although the process is complex, there are key points to remember:

The $205 fee is non-refundable for most applicants. Low-income taxpayers may be eligible to waive it.

Initial payment is required. It's non-refundable. If you are paying in less than five installments, your initial payment must equal 20%. Your first monthly installment must equal six monthly installments.

The IRS will suspend collection activities once you have filed your application. The IRS may file or retain tax liens until you accept its offer.

The IRS used to be able to keep your tax refund and use it towards your tax debt. The IRS announced on November 1, 2021, that it will no longer be able to recover refunds from the year in which the OIC has been accepted. However, there is one caveat. You may have to return an OIC if you are refunded via amended returns.

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You may be eligible to request an offset bypass refund (OBR) if you are still waiting for an OIC agreement from IRS.

To qualify for the offset bypass refund (OBR), you will need to work with the IRS to show economic hardship. You may not get the entire amount. More information is available at the IRS.

Some information regarding your offer of compromise may be made public. The IRS has public inspection files that include information about offers in compromise. These files include the name of the taxpayer, address, ZIP code, liability amount, and terms.

You can appeal to the IRS within 30 days if your offer is rejected by them. You can access an online guide from the IRS to help you.

Other options

If you are unable to accept an offer of compromise or the IRS rejects it, there may be other options available through the IRS for tax relief. These include an installment plan or asking for "currently not collectible".

Choose the tax relief company that is best for you

We have weighed the pros and cons of major players in this space.