{"id":539,"date":"2021-01-05T20:11:22","date_gmt":"2021-01-05T21:11:22","guid":{"rendered":"http:\/\/www.petermaneurope.com\/?p=539"},"modified":"2025-02-07T13:21:19","modified_gmt":"2025-02-07T13:21:19","slug":"6-steps-to-submit-an-offer-in-compromise-for-tax-debt","status":"publish","type":"post","link":"http:\/\/www.petermaneurope.com\/index.php\/2021\/01\/05\/6-steps-to-submit-an-offer-in-compromise-for-tax-debt\/","title":{"rendered":"6 Steps to Submit an Offer in Compromise for Tax Debt"},"content":{"rendered":"<p>Having trouble paying your tax bill? Falling behind on taxes can be scary, but you have options to get caught up. One common, albeit last-resort option, is an \u201cOffer in Compromise\u201d. In the 2022 fiscal year, the IRS accepted 13,165 offers&nbsp;in compromise to settle existing tax liabilities for less than the full amount owed, amounting to more than $234.3 million.<\/p>\n<p>If you\u2019re considering making an Offer in Compromise, you\u2019ll need to know what it means and how to proceed. Here\u2019s everything you need to know to determine if this strategy is right for you.&nbsp;&nbsp;<\/p>\n<div class=\"gfc-table-of-contents gfc-table-of-contents-blockwrap gfc-blockwrap\">\n<div class=\"gfc-table-of-contents-title-container\">\n<h3>Table of Contents<\/h3>\n<\/div>\n<div class=\"gfc-table-of-contents-content\t-container\">\n<ul>\n<li><a href=\"#what-is-an-offer-in-compromise\">What Is an Offer in Compromise?<\/a><\/li>\n<li><a href=\"#how-to-submit-an-offer-in-compromise\">How to Submit an Offer in Compromise<\/a><\/li>\n<li><a href=\"#what-happens-when-your-offer-is-approved\">What Happens When Your Offer Is Approved<\/a><\/li>\n<li><a href=\"#what-to-do-if-your-offer-is-denied\">What to Do If Your Offer Is Denied<\/a><\/li>\n<\/ul>\n<\/div>\n<\/div>\n<h2 class=\"wp-block-heading\">What Is an Offer in Compromise?<\/h2>\n<p>An Offer in Compromise is an agreement you make with the IRS to settle your tax debt for less than the full amount. It\u2019s used in cases where taxpayers would experience significant financial hardship if they paid the full tax amount that\u2019s owed.&nbsp;<\/p>\n<p>Qualifying for an Offer in Compromise isn\u2019t easy. The IRS will assess not only your ability to pay the debt but also your income, expenses, and any equity you have in your assets. If it approves your offer, there are two different payment options (monthly or lump sum) available to help you customize your repayment schedule to your needs.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">Offer in Compromise Eligibility<\/h3>\n<p>Here\u2019s what the IRS looks for to determine eligibility for an Offer in Compromise:&nbsp;<\/p>\n<ul class=\"wp-block-list\">\n<li>You can\u2019t be in an open bankruptcy proceeding.<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>You have to be caught up on filing all of your federal tax returns.&nbsp;<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>You need to have made all of your required estimated tax payments.&nbsp;<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>You\u2019ve submitted all federal tax deposits for any employees.&nbsp;<\/li>\n<\/ul>\n<p>Once you\u2019ve met the basic criteria for eligibility, the IRS will review your offer. It typically approves offers where the amount you\u2019ve suggested is more or less the maximum it could collect from you in what it determines to be a \u201creasonable\u201d amount of time.&nbsp;<\/p>\n<h2 class=\"wp-block-heading\">How to Submit an Offer in Compromise<\/h2>\n<p>Submitting an Offer in Compromise can be complicated so many people prefer to use a tax relief company to help. If you go that route, be sure to compare the <a href=\"https:\/\/www.goodfinancialcents.com\/best-tax-relief\/\" target=\"_blank\" rel=\"noreferrer noopener\" data-wpel-link=\"internal\">best tax relief companies<\/a> online before choosing one. Review each company to ensure it has a good track record, excellent customer service, and low <a href=\"https:\/\/www.goodfinancialcents.com\/tax-relief-services-cost\/\" target=\"_blank\" rel=\"noreferrer noopener\" data-wpel-link=\"internal\">tax relief service costs<\/a>.&nbsp;<\/p>\n<p>Although you can go through a tax relief company to submit an Offer in Compromise on your behalf, you can choose to submit your Offer in Compromise on your own which can save you money. Here are the basic steps to preparing an Offer in Compromise for the IRS.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">Step 1: Gather Important Documents<\/h3>\n<p>You\u2019ll need to provide personal details to complete your Offer in Compromise. First, make sure you have documents that show your total financial situation. You\u2019ll want to have all aspects of your finances documented, such as cash, investments and assets, available credit, debt, and your income.&nbsp;<\/p>\n<p>Also, if there are others in your household who contribute to expenses you\u2019ll need to provide information about their income and average expenses.<\/p>\n<h3 class=\"wp-block-heading\">Step 2: Complete Form 433-A (OIC) or 433-B (OIC)<\/h3>\n<p>Form 433-A (OIC) is for wage earners and those who are self-employed. This form helps the IRS calculate what it believes is an appropriate offer based on your income, expenses, and earning potential. Keep in mind, if you\u2019re married, but living separately, your spouse will also have to file the same form.&nbsp;<\/p>\n<p>Form 433-B (OIC) is necessary to fill out if you own a business or corporation, or you\u2019re a single-member LLC, taxed as a corporation.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">Step 3: Attach Supporting Documents<\/h3>\n<p>You\u2019re not limited to only the information on the form, you can also attach additional documentation that shows your financial circumstances. Each form has a list of the specific documents you need to attach for support.&nbsp;<\/p>\n<p>For example, with Form 433-A (OIC) some of the supporting documents you need to attach are copies of:<\/p>\n<ul class=\"wp-block-list\">\n<li>Current pay stubs or earning statements;<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>Individual bank statements from the last three months; and<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>Statements for each investment or retirement account you have&nbsp;<\/li>\n<\/ul>\n<h3 class=\"wp-block-heading\">Step 4: Complete Form 656, Offer in Compromise<\/h3>\n<p>In <a href=\"https:\/\/www.irs.gov\/forms-pubs\/about-form-656\" target=\"_blank\" rel=\"noreferrer noopener external\" data-wpel-link=\"external\">IRS Form 656<\/a>, you\u2019ll decide which tax years, and the type of tax, you\u2019re going to offer a compromise for. You\u2019ll also need to state the amount and how you\u2019ll make payments.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">Step 5: Include Payment<\/h3>\n<p>There are two separate payments you\u2019ll need to make with your offer \u2014 the application fee, which is $205, and your initial payment.&nbsp;<\/p>\n<p>Your initial payment depends on which repayment method you\u2019re choosing. If you\u2019re opting for monthly payments, then you\u2019ll need to send the first month\u2019s amount. If you\u2019re opting for lump sum payments, you\u2019ll need to send 20% of the total amount. If your offer is rejected, this initial payment will be applied to your tax debt.&nbsp;<\/p>\n<p>You can send both payments by personal check, cashier\u2019s check, or money order, or through the Electronic Federal Tax Payment System. You should make them payable to the \u201cUnited States Treasury.\u201d&nbsp;<\/p>\n<p>There\u2019s only one scenario when you don\u2019t have to send any funds with your application&nbsp; \u2014 that\u2019s if you qualify for Low-Income Certification. In this case, your application fee is waived and you don\u2019t need to send your initial payment.&nbsp;<\/p>\n<h3 class=\"wp-block-heading\">Step 6: Mail Your Application<\/h3>\n<p>Before you drop your application in the mail, be sure to make a copy of the entire package to keep for your records. It\u2019s a good idea to send any sensitive documents, like an Offer in Compromise, via certified mail so that you can track the offer and retain proof of delivery.<\/p>\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" width=\"1024\" height=\"595\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" alt=\"\" class=\"wp-image-55161 img-fluid lazyload\" data-src=\"http:\/\/www.petermaneurope.com\/wp-content\/uploads\/2021\/01\/6-Steps-to-Submit-an-Offer-for-Tax-Debt-Relief-1024x595-1.png\"><\/figure>\n<h2 class=\"wp-block-heading\">What Happens When Your Offer Is Approved<\/h2>\n<p>If your Offer in Compromise is approved, you\u2019ll have to continue to file taxes and keep up with estimated payments that are due in the future. <em>An approved Offer in Compromise doesn\u2019t give you any tax immunity on future earnings, it simply helps you resolve tax debt from past earnings.<\/em>&nbsp;<\/p>\n<p>After receiving written confirmation that your offer is approved, you\u2019ll need to review the Offer Terms, which will be listed in Section 7 of Form 656. Then, you can start making payments.&nbsp;<\/p>\n<p>If you opted for a lump-sum payment, you\u2019ll have already submitted 20% of your total payment with your initial offer. After that offer is approved, you\u2019ll need to pay the remaining balance in a maximum of five payments.&nbsp;<\/p>\n<div class=\"wp-block-gfc-custom-blocks-gfc-blue-callout-box-no-button-block container gfc-blue-callout-box-no-button-blockwrap gfc-blockwrap blue-callout-box-no-button-wrapper undefined wide\">\n<div class=\"row\">\n<div class=\"col-md-12 d-flex align-items-center justify-content-undefined\">\n<div class=\"blue-callout-box-no-button-wrapper\">\n<p class=\"blue-callout-box-no-button-message\">If you decide to make periodic payments you\u2019ll owe monthly installments to the IRS, which you must make until you\u2019ve fully repaid your debt up to the amount in your accepted offer.\u00a0<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<h2 class=\"wp-block-heading\">What to Do If Your Offer Is Denied<\/h2>\n<p>Not every Offer in Compromise is accepted by the IRS. If yours is denied, you still have options.&nbsp;<\/p>\n<p>Here\u2019s what to try next:<\/p>\n<ul class=\"wp-block-list\">\n<li>You have 30 days to appeal your rejection, which you can do using <a href=\"https:\/\/www.irs.gov\/pub\/irs-pdf\/f13711.pdf\" target=\"_blank\" rel=\"noreferrer noopener external\" data-wpel-link=\"external\">Form 13711<\/a>.<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>Set up an installment agreement with the IRS that allows you to make monthly payments throughout a set term. This can stop any collection activity against you by the IRS.&nbsp;<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>Apply for a payment extension using <a href=\"https:\/\/www.irs.gov\/forms-pubs\/about-form-1127\" target=\"_blank\" rel=\"noreferrer noopener external\" data-wpel-link=\"external\">Form 1127<\/a>.<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>Request \u201cCurrently Not Collectible\u201d status, which could temporarily defer your tax bill until your finances improve.&nbsp;&nbsp;&nbsp;<\/li>\n<\/ul>\n<p>In addition to these strategies, you can also work to improve your finances to make it easier to repay your tax debt. If you don\u2019t already have a budget, create one that includes debt payments.&nbsp;<\/p>\n<p>Once you\u2019ve cut expenses and directed those funds toward repaying your tax debt, consider also <a href=\"https:\/\/www.goodfinancialcents.com\/how-to-make-money-fast\/\" target=\"_blank\" rel=\"noreferrer noopener\" data-wpel-link=\"internal\">increasing your income<\/a> to help you <a href=\"https:\/\/www.goodfinancialcents.com\/how-to-get-out-of-debt\/\" data-wpel-link=\"internal\" rel=\"noopener\">tackle your debt faster<\/a>.&nbsp;<\/p>\n<p>Even though paying your total tax bill might seem daunting, remember that it\u2019s possible to fix financial problems \u2014 you won\u2019t stay stuck forever. The key is determining the right plan for you and then staying consistent as you work toward <a href=\"https:\/\/www.goodfinancialcents.com\/good-financial-goals\/\" data-wpel-link=\"internal\" rel=\"noopener\">your goals<\/a>.&nbsp;<\/p>\n<p>The post <a rel=\"nofollow noopener\" href=\"https:\/\/www.goodfinancialcents.com\/offer-in-compromise\/\" data-wpel-link=\"internal\">6 Steps to Submit an Offer in Compromise for Tax Debt<\/a> appeared first on <a rel=\"nofollow noopener\" href=\"https:\/\/www.goodfinancialcents.com\" data-wpel-link=\"internal\">Good Financial Cents\u00ae<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Having trouble paying your tax bill? Falling behind on taxes can be scary, but you have options to get caught up. One common, albeit last-resort option,&#46;&#46;&#46;<\/p>\n","protected":false},"author":1,"featured_media":541,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[14],"tags":[],"_links":{"self":[{"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/posts\/539"}],"collection":[{"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/comments?post=539"}],"version-history":[{"count":2,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/posts\/539\/revisions"}],"predecessor-version":[{"id":542,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/posts\/539\/revisions\/542"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/media\/541"}],"wp:attachment":[{"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/media?parent=539"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/categories?post=539"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.petermaneurope.com\/index.php\/wp-json\/wp\/v2\/tags?post=539"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}