If you cannot pay your tax debt in full or you dispute what is owed, you may propose to resolve the matter with an Offer in Compromise. The purpose of an Offer in Compromise is to settle a taxpayer's liability for less than the full amount owed. The ultimate goal is a resolution that is in both the government's and the taxpayer's best interest.

To submit an offer complete Form 656, Offer in Compromise. Detailed instructions are provided with the form.

If the basis of your offer is inability to pay, also complete Form 433-A, Collection Information Statement for Individuals and/or Form 433-B, Collection Information Statement for Businesses. We cannot consider an offer on this basis if you're involved in an open bankruptcy proceeding or if you have not filed all federal tax returns. In-business taxpayers must have also timely filed employment tax returns for the two prior quarters and have timely deposited all employment taxes for the two prior quarters and the current quarter. The amount of your offer should equal or exceed your equity in assets, your ability to make installment payments from future income, amounts we can collect from third parties on your behalf and funds that are available to you but not subject to the Service's collection actions. You may choose to pay the offer amount in a lump sum, in monthly payments over the remainder of the statutory time allowed for collection or a combination of a lump sum and monthly payments. Generally, it is to your advantage to pay the amount in the shortest time possible because longer payment terms will require a larger offer amount.

If the basis of the offer is a dispute as to what is owed, provide a written statement of supporting evidence. We cannot accept a compromise on this basis if a court has decided the liability.

Ordinarily, we will withhold collection action while we consider your offer. The statutory time allowed for collection is suspended during the period your offer is pending.

An examiner will evaluate your offer and may request additional documentation from you to verify financial or other information you provide. If we decide a larger offer amount is necessary to justify acceptance you will be given an opportunity to amend your offer.

In exceptional circumstances, some taxpayers may qualify for a special type of Offer in Compromise even though the amount owed is correct and it can be paid in full. To be eligible for a compromise on this basis you must demonstrate that paying the debt would create an economic hardship or would be unfair and inequitable.

If the IRS grants you a fresh start by accepting your offer it is expected there will be no further delinquencies. If you do not abide by all the terms of our agreement, including filing all future returns and making all payments when required, your offer may be declared in default. We will reinstate the entire liability including accrued penalty and interest. All payments made toward the offer will be applied to the original liability.

If we reject your offer you will be notified by mail. In our letter, we will explain the reason for the rejection and provide detailed instructions on how to appeal our decision.

Additional information about the Offer in Compromise can be found on Form 656, and in Publication 594, Understanding the Collection Process. Publications and forms may be downloaded from this site or ordered by calling 1-800-829-3676.

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