Offer in Compromise FAQs
Q: What is an Offer in Compromise?
A: An Offer in Compromise is a tax settlement method offered by the IRS to allow taxpayers to settle their taxes for less than they owe. An Offer in Compromise will only be accepted if the IRS believes that the tax liability cannot be paid in full or through a payment plan. They also must believe that the offer being made is equal to or greater than the amount they would ever expect to collect from the taxpayer.
Q: What are the qualifications for an Offer in Compromise?
A: There are three different ways that a taxpayer can qualify for an Offer in Compromise.
- Doubt as to Collectibility
- Doubt as to Liability
- Effective Tax Administration
Find more details on requirements to qualify for an Offer in Compromise.
Q: What forms do I need to use in order to file for an Offer in Compromise?
A: Filing for an Offer in Compromise is complicated and requires lots of documentation. Some documentation depends upon if you are an individual filing or a business, so choose the documents that are appropriate to you:
- IRS Form 656 – Offer in Compromise Booklet and Form
- IRS Form 656-A – Income Certification for Offer in Compromise. Application Fee and Payment
- Form 433-A – Collection Information Statement for Wage Earners & Self-Employed Individuals
- Form 433-B – Collection Information Statement for Businesses
- Various Other: You will need three months of documentation on just about every expense and income you have. These amounts include pay stubs, credit card statements, housing, investments, transportation, tax returns, etc.
Find details on required documentation needed for your Offer in Compromise.
Q: Should I use a tax professional to help?
A: Yes! This type of filing is fairly complex and the use of a tax professional can greatly increase your chances of having your offer accepted. If the tax professional does not believe you are a good candidate for an Offer in Compromise they will find the next best method for you to resolve your taxes with the IRS.
Find out more on how a tax professional can help you with an Offer in Compromise.
Q: Can anyone qualify for an Offer in Compromise?
A: No. It is actually extremely rare that the IRS accepts Offer in Compromise filings. The IRS will only accept those people that it thinks are highly deserving of it. Before considering this type of filing be sure to read through the requirements in detail to see if you meet them.
Q: I submitted my offer. How long until I hear if it was accepted?
A: Typically they will take a couple of months to decide whether or not to accept your Offer in Compromise. If more than two months has passed, it can by a good idea to check in with them and see how the process is moving along. It still is common for the IRS to take 6 months to come to a decision.
Q: What if my offer was rejected and I don’t agree with the decision?
A: If you don’t agree with the decision the IRS has made you do have the right to appeal their decision. Sometimes they will deny it because of lack of information. If you can provide this information in more detail then it could be a good idea to appeal. You will have 30 days to request an appeal from the date the IRS denied your Offer in Compromise filing.
Q: I owe state taxes as well. Will the State accept my Offer in Compromise?
A: You will have to file for a state Offer in Compromise separately than your IRS filing. Not all states offer this type of settlement and the ones that do, typically have a different way of determining if the taxpayer should qualify. If your IRS offer is accepted then there is a better chance that the state offer will be accepted, but it is still not guaranteed.
Q: Is it expensive to have a professional help with an Offer in Compromise filing?
A: The fees for this type of filing can range from a few hundred to a few thousand dollars. They are typically based on the complexity of the tax problem and the amount of time that will be required to prepare the documentation and handle negotiations on your behalf. Typically these costs are justified because if your offer is accepted you will be saving a lot more money than the fees that were involved with the filing.
For more details, refer to our section on Offer in Compromise payment options.