An offer in compromise is an agreement between you and the I.R.S. that settles a tax debt for less than the full amount owed. The ultimate goal is to reach a settlement that is in the best interest of both the taxpayer and the I.R.S. Some of the information about the agreement has been digested down to the following details:
- You must be current on all federal tax deposits and estimated tax payments.
Penalties and interest on your tax liability will continue to accrue during the offer evaluation process. - You must pay a $186 application fee with submission of your offer.
- You must choose between two options for payment.
a. Lump Sum Cash Option: Pay 20% of the total offer with
submission of the offer and pay the balance in full in five or
fewer installments within 24 months of the acceptance date of the offer.
b. Periodic Payment Option: Make the first payment with the offer and pay the balance in full within 24 months in
accordance with your payment terms. - Failure to make the payments according to your terms will cause the offer to be returned.
- You must continue to meet all future federal tax obligations. Failure to do so for all obligations for the five years after your offer is accepted may cause your offer to be defaulted. If so, all compromised tax debt including penalties and interest would be reinstated.
- The application process requires completion of Form 656 – Offer in Compromise, completion of Form 433-A (OIC) – Collection Information Statement for Wage Earners and Self-Employed Individuals, if applicable, Form 433-B (OIC) – Collection Information Statement for Businesses, if applicable and payment of the $186 application fee.
For a complete guide to all details regarding an offer in compromise, please go to the following link: http://www.irs.gov/pub/irs-pdf/f656b.pdf