How to File an Offer in Compromise for Your Tax Bill

If you owe the IRS more in taxes than you can comfortably pay, then you may be able to negotiate an offer in compromise. An offer in compromise is pretty much what it sounds like: a compromise on your existing tax bill, meaning you agree to pay part of what you owe, and the IRS agrees to forgive the rest.

Offer in compromise requirements
Before you can start the offer in compromise process, you’ll need to meet certain requirements. First, you must have filed all required tax returns. Second, you must have received at least one bill from the IRS for your existing tax debt. And third, you must have made all estimated tax payments for the year and (if you’re a business owner) made all your payroll deposits as well.

You also need acceptable grounds for making the offer. The IRS will accept one of three official grounds: doubt as to collectibility, effective tax administration, and doubt as to liability. The most frequently used of the three reasons, doubt as to collectibility means that the IRS isn’t sure it will ever be able to collect the full amount of your tax bill. Effective tax administration is a fancy way of saying that you have some special circumstance that would make paying your tax bill in full an economic hardship for you, even if you technically have enough assets and/or income to cover the debt. Finally, doubt as to liability means that you can prove you shouldn’t owe the taxes at all. This last option is so rarely successful that it’s usually not even worth trying.

Filling out the paperwork
Getting started with an offer in compromise means filling out a whole lot of paperwork. First, there’s Form 656, the main Offer in Compromise form. It asks for basic information about you and your debt, asks you to select one of the official grounds, and allows you to make a payment offer in the form of either a single lump sum or a periodic payment plan running anywhere from six to 24 months.

Next, you get to fill out Form 433-A (or Form 433-B, if you’re requesting an offer in compromise on business taxes). This form requires you to disclose your assets, income and expenses in excruciating detail. Tedious as this form is, you have to fill it out as completely and accurately as possible, as this is the information the IRS will use when deciding whether or not to approve your offer.
If you would rather not take on this process alone call Galler Law 770.671-8830.