The ultimate goal of an offer-in-compromise is a settlement that is in
both the Government's and the taxpayer's best interest. The IRS will accept an
offer-in-compromise to settle unpaid accounts for less than the amount owed when doubt
exists as to whether you owe the liability, or when there is doubt that the liability can
be collected in full and the amount you offer reasonably reflects collection potential.
This may be an alternative for resolving your tax delinquency.
If the basis of the offer is doubt that you owe the liability, for example, a disputed
assessment, you must provide a written statement of supporting evidence. The Service
cannot accept a compromise where the liability has already been decided by a court.
To submit an offer-in-compromise you must complete Form 656; complete instructions are
provided on the form. Also, you must submit Form
433-A, Collection Information Statement for Individuals, or Form 433-B, Collection Information Statement
for Businesses, if the basis of the offer is doubt that the liability can be collected
in full. These forms provide a statement of your income, expenses, assets, and
liabilities.
The amount of the offer should at least equal or exceed your equity in all assets. When
reviewing an offer, the IRS considers four factors:
- The amount collectible from your assets,
- The amount collectible from present and future income,
- The amount that can be collectible from 3rd parties, for example, Trust Fund Recovery
penalty and transferee; and
- Sources of funds that are available to you but not subject to the Service's collection
action.
It is your responsibility to show how acceptance of the offer would be in the best
interest of the Government.
Generally, the IRS will not accept an offer unless it is clear that you have complied
with all current filing and paying requirements. The acceptance of an offer creates a
"fresh start"; therefore, the terms of the offer require future compliance with
all tax filing and paying requirements for a period of 5 years. If you do not abide by all
the terms of the offer, including the compliance requirement, the IRS may reinstate the
entire tax liability.
Additional information about the Offer-in-Compromise can be found on Form 656, and in
Publication 594, Understanding the Collection Process. These are available by
calling 1-800-829-3676.
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