Who do you turn to when you are stuck in tax debt? How do you get out of a financial hole?
One solution with the Internal Revenue Service (IRS) is to file an Offer in Compromise. An Offer in Compromise (OIC) is an opportunity to settle your tax debt for less than the full amount you owe.
Whether the IRS is willing to accept your Offer in Compromise and the exact amount of debt forgiveness is decided on a case-by-case basis.
Understanding an Offer in Compromise
An Offer in Compromise (OIC) helps you settle tax debt when you have exhausted other resources. It enables taxpayers to settle the debt for less than the full amount you owe, hence the compromise.
It is important to note that the IRS does not accept every proposed Offer in Compromise. It examines a few different factors to determine eligibility. The IRS generally awards an OIC to taxpayers that can prove they can’t pay their full tax liability, and that by doing so would create a financial hardship.
The Internal Revenue Service traditionally examines your qualifications depending on A) your ability to pay, B) income, C) expenses, and D) asset equity.
The agency generally approves an Offer in Compromise when the amount offered represents the most the IRS can expect to collect within a “reasonable period of time”. The IRS suggests that taxpayers study other potential payment options before mailing an OIC.
The IRS approves an Offer in Compromise (OIC) on a case-by-case basis. Your chances of getting approved are relatively low, considering that less than half of OIC proposals get accepted each year.
In fact, the success rate is about 40 percent, which means that you need to make sure you meet all the eligibility requirements beforehand to make sure you don’t waste your or the IRS’ time. Additionally, you need to submit a really strong case via the OIC.
The IRS returns any Offer in Compromise application when a taxpayer has failed to file all required tax returns or has not made required estimated payments. Furthermore, taxpayers that are currently in open bankruptcy proceedings are not eligible.
A tax professional can help explain the process of an Offer in Compromise, examine your eligibility, as well as help you put together an offer. Since the success rate for approval is low, it is recommended to get professional assistance to improve the chances of approval.
How Do I Submit an Offer in Compromise to the IRS?
An Offer in Compromise is referred to as a package because the actual offer contains several required documents. The Offer in Compromise form includes all the documents outlined in the booklet provided by the IRS:
- Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses. Taxpayers also need to submit all the required documentation mentioned in the OIC form.
- Form 656(s) for individual and business tax debt (LLC, partnership, corporation).
- Initial payment, which is non-refundable, outlined under each Form 656.
- $186 application fee, which is also non-refundable.
The initial payment varies depending on the offer and payment option. Taxpayers may offer a lump sum cash payment (20 percent of the total offered amount), yet most opt to submit in periodic payments.
Taxpayers that meet the Low Income Certification guidelines of the IRS may not have to submit an application fee or the initial payment. Speaking with a tax professional can determine if you are eligible for the Low Income Certification.
Where Do I Send Form 433a?
IRS Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, is the primary Offer in Compromise form you need to submit (though not the only type of documentation).
The official IRS form requires personal information, employer information, and financial reporting.
The IRS website contains guides on dealing with your Offer in Compromise, providing details of all of the forms you will need to complete as well as the application fee that you will need to pay when you make your Offer in Compromise.
It is important to read through the guide thoroughly (or reach out to a tax professional), as it will explain in detail what is involved in the process, what you need to do, the next course of action, and which IRS office you need to deal with in regards to your Offer in Compromise.
The address to which you mail your offer in compromise will depend on the state or area in which you live. According to the current guidelines from the IRS, the mailing details for the different states are as follows:
States: AK, AL, AR, AZ, CO, FL, GA, HI, ID, KY, LA, MS, MT, NC, NM, NV, OK, OR, SC, TN, TX, UT, WA, WI, WY
Memphis IRS Center COIC Unit
P.O. Box 30803
AMC Memphis, TN 38130-0803
States: CA, CT, DE, IA, IL, IN, KS, MA, MD, ME, MI, MN, MO, ND, NE, NH, NJ, NY, OH, PA, RI, SD, VT, VA, WV; DC, PR, or a foreign address
Brookhaven IRS Center COIC Unit
P.O. Box 9007
Holtsville, NY 11742-9007
While You are Waiting for OIC Approval/Rejection
The IRS takes time to evaluate your Offer in Compromise. While you are waiting, there are a few things you can do.
Other collection activities normally get suspended while the IRS evaluates your OIC. Furthermore, the legal assessment and collection period is extended, so it helps you buy some time.
Regardless, it is still important that you continue to make all required payments associated with your offer until you hear otherwise that the offer was rejected. However, you are not required to make payments on an existing installment agreement until the matter is settled.
Tax Assistance with Your Offer in Compromise
If you find yourself in a situation where you are struggling to make your tax payments, and you need to look at a solution such as an Offer in Compromise, don’t be afraid to reach out for help!
You need to ensure you know what steps to take and what you need to do. This includes making sure you know where you must mail the Offer in Compromise form and other necessary paperwork.
Levy & Associates wants to help you with your Offer in Compromise. Schedule a free consultation today to examine your options. Levy & Associates is available at 800-TAX-LEVY, or by visiting www.levytaxhelp.com.