Offer in Compromise is a commonly known term within the tax world. Referring to the ability to set up a plan to pay less than you owe on taxes, it sounds enticing to those struggling with tax debt. While Offer in Compromise can knock off hundreds or even thousands of dollars in tax debt, there are a few important things to remember before filing.
What you need to Know about Offer in Compromise
An Offer in Compromise is an agreement between a taxpayer and the IRS that reduces the amount that they owe. The money can be paid in lump sum form or through a payment plan. Most of the time, the IRS will not accept an Offer in Compromise unless the amount of money and property that the taxpayer possesses is enough to pay what is called a reasonable collection potential or RCP. Simply stated, the RCP measures the taxpayer’s ability to pay and includes future income.
There are also a few different types of Offer in Compromise, each of which may sway the IRS to accept the request.
Doubt as to Collectability occurs when the taxpayer simply doesn’t have the money to make the monthly or lump sum payment.
Doubt as to Liability refers to a legitimate doubt that the amount of taxes owed is correct. Hiring tax experts such as Levy & Associates may help find that your previous returns are inaccurate and that you quality for Offer in Compromise.
Effective Tax Administration is when there the tax liability is correct and that the taxpayer could pay the full amount, but there are extreme circumstances. This type of Offer in Compromise is only accepted when the taxpayer shows that paying the full liability would cause economic turmoil within their life.
Offer in Compromise Payment Options
Lump Sum – Once an Offer in Compromise has been accepted, there is an option to pay in installments of five and fewer. These are non refundable and must pay off the full amount of the Offer in Compromise.
Short Term Periodic Payment – Again, these are non-refundable and they must be paid within 24 hours after the IRS received the offer. The Offer in Compromise will also include the value of the assets of the taxpayer which can be collected if the amount is not fully paid.
Deferred Periodic Payment – These payments are made over the remaining period of the original tax collection. The first payment includes a $150 application fee after filing. Again, this offer can include the taxpayer’s assets.
Before selecting a form of Offer in Compromise, make sure to talk to a tax expert to find you the right option. Levy & Associates can help point you in the right direction and find an Offer in Compromise that will satisfy both you and the IRS.
Levy & Associates has been in the tax business for over 20 years and can provide you with facts about Offer in Compromise that you will need before filing. As with any tax situation, hiring an expert should be the first step in absolving your debt, and filing for Offer in Compromise is no different.
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