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Can an offer in compromise help your tax situation?

On Behalf of | May 15, 2020 | Tax Controversy

A person who owes considerable money to the Internal Revenue Service knows how stressful the situation can be, especially if you don’t have the means to pay what the agency says you owe. For some people, being able to enter into an offer in compromise can help to take some of the pressure off them. This program has specific requirements and the application process must be handled precisely. 

There are three reasons why the IRS might accept an offer in compromise. These include:

  • Doubt that collection will be possible because you don’t have assets or income that are equal to the amount of the debt 
  • Doubt that you are liable for the amount if it is a genuine dispute that is based on tax laws 
  • Exceptional circumstances that would create a hardship on you that would be unfair or inequitable if you were to pay in full

When you propose an offer to the IRS, you must determine what type of payment you’re offering. There are two possibilities. 

  • You propose a periodic payment offer. This means that you’ll have the offer paid off within 24 months with at least six payments made during that time. You’ll include the first payment with the offer.
  • The second option is a lump sum cash offer. This requires you to pay off the proposed balance within five months in five or fewer payments. You must include a 20% down payment in the offer.

The initial payment that you make with the offer is nonrefundable. It’s applied to the debt you owe, even if your offer isn’t accepted. Because there are so many variables within the offer in compromise program, you must ensure you understand how it will impact you and all of your legal options.