Unlocking the Secrets of an Offer in Compromise: A Comprehensive Guide - Chapter 4
Chapter 4 – Filing Details/Payment Terms/Important Consequences
IRS FORM 656 – OFFER IN COMPROMISE
Use IRS form 656, Offer in Compromise to submit your offer.
You can access the form via this link.
Be sure to read the accompanying booklet.
Note that there are different forms of Form 433, Collection
Information Statement, that are a part of the submission process. Form 433-A is
for use by Wage Earners and Self-Employed Individuals. Form 433-B is used by
Businesses.
Also note that there is a specific form, 656-L, for use if
you are claiming doubt as to liability.
The IRS site also has a pre-qualifier tool. But don’t get
too upset if it reports that you are not eligible. The tool does not take into
account any special circumstances or other issues that may be relevant to your
situation. Please refer back to this section of my Blog for a more detailed
discussion of this issue.
Who Can File An Offer?
An Offer in Compromise (OIC) can be filed by any individual
or business taxpayer who owes a federal tax debt to the Internal Revenue
Service (IRS).
Eligibility to file an OIC depends on the taxpayer must
being current on all filing and payment
requirements, including filing all required tax returns and making all required
estimated tax payments. The taxpayer must also submit all required financial
information to the IRS to support their offer.
Where To Submit Your Offer?
The IRS maintains two centers that process Offer in
Compromise applications:
If you reside in AZ, CA, CO, HI, ID, KY, MS, NM, NV, OK, OR,
TN, TX, UT, WA you will send your OIC to:
PO Box 30803, AMC
Memphis, TN 38130-0803
If you reside in AK, AL, AR, CT, DC, DE, FL, GA, IA, IL,
IN,KS, LA,MA, MD, ME, MI, MN, MO, MT, NC, ND, NE, NH, NJ, NY, OH, PA, PR, RI
SC, SD, VA, VT, WI, WV, WY or a foreign address, you will send your OIC to:
Brookhaven IRS Center COIC Unit
PO Box 9007
Holtsville, NY 11742-9007
Terms of Payment
An OIC has two basic payment choices, a Lump Sum (Cash)
payment and a Periodic Payment option.
The Lump Sum (Cash) payment requires a 20% down payment,
with the balance paid in five or fewer months.
The Periodic Payment requires your first monthly payment
with the offer, and the total amount paid within 24 months. You must continue
to make your proposed monthly payment while the IRS analyzes your offer. If you
fail to make your payments your offer will rejected. The IRS will apply all
payments made to your tax debt. You can avoid the requirement of making monthly
payments during the review process if you mee the Low Income Certification
guidelines.
Application Fee
Each offer requires an application fee of $205.00, which is
not applied to your tax debt. You may avoid the fee if you qualify under the Low
Income Certification guidelines.
of Filing an Offer in Compromise
Waiver of Taxpayer’s claims for Refunds or Credits
Filing an Offer in Compromise (OIC) does not necessarily waive a taxpayer's right to refund claims. An OIC is a way for a taxpayer to settle their tax debt with the government for less than the full amount owed. The taxpayer can still file a claim for a refund for any overpaid taxes for open tax years during the period in which the OIC is being considered by the government. However, if the OIC is accepted and the taxpayer receives a settlement, they may be required to waive their right to a refund for the tax years included in the settlement. This will be specified in the agreement reached between the taxpayer and the government.
It is important to carefully consider the terms and conditions of an OIC before submitting it, as it can have significant implications for a taxpayer's financial and legal obligations. Taxpayers are advised to seek the assistance of a tax professional to help them understand the process and the potential impact on their refund rights.
Filing an Offer in Compromise (OIC) does not necessarily
forfeit a taxpayer's option to file a joint return. An OIC is a way for a
taxpayer to settle their tax debt with the government for less than the full
amount owed, but it does not affect a taxpayer's ability to file a joint tax
return with their spouse.
The deemed acceptance rule of an Offer in Compromise (OIC)
is a provision under the Internal Revenue Code (IRC) that allows the government
to consider an OIC to be accepted if the government does not respond to the
taxpayer's offer within a certain period of time.
• Acceptance:
If the Offer in Compromise is accepted, the debt owed by the debtor can be
reduced and the bankruptcy proceedings may be concluded more quickly.
• Rejection:
If the Offer in Compromise is rejected, the debtor may need to consider other
options for resolving the debt, such as a payment plan or negotiating a
settlement.
• Delay: The
submission of an Offer in Compromise can delay the bankruptcy proceedings while
the offer is being considered and evaluated by the court.
It is important to note that the acceptance of an Offer in
Compromise during a bankruptcy proceeding depends on a number of factors,
including the amount of the offer, the financial condition of the debtor, and
the priorities of the creditors. It is recommended that you, the
taxpayer/debtor seek the assistance of a bankruptcy attorney and your Enrolled
Agent to help navigate the process and ensure that your rights are protected.
This is an extremely complicated processes and extreme care must be paid to
both the tax considerations and the bankruptcy considerations in this case.
You Agree to Stay Compliant for Five Years
Implicit in the acceptance of your offer is that you will comply with the filing requirements and payment requirements for five years after acceptance. This means if you fail to pay enough in year four, all your efforts will have been wasted and the IRS will reinstate the amount of taxes you owed when you filed your OIC. For example, if you had $30,000 in taxes forgiven as a result of a successful offer, failure to pay in year four will mean that the $30,000 gets added back to your balance. Don't let this provision trip you up!
