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IRS Tax Settlement | Is an Offer in Compromise for You | Flat Fee Tax Service

Updated: May 23, 2019

IRS TAX SETTLEMENT - OFFER IN COMPROMISE

What Is an Offer in Compromise?

An Offer in Compromise is an IRS tax debt settlement of tax debt defined as “an agreement between you (the taxpayer) and the IRS that settles a debt for less than the full amount owed.” The Offer in Compromise (OIC) program provides qualified taxpayers with an opportunity to pay off their tax debt and get a fresh start. Ideally, an Offer in Compromise serves the interests of the taxpayer as well as the IRS.

The Offer in Compromise (OIC) program may be your best option if you cannot pay your full tax liability, or if paying the full amount would cause you financial hardship.


Offer in Compromise (OIC) Eligibility Requirements

In order to be considered for an Offer in Compromise (OIC), you must make a suitable offer based on your “true ability to pay.” Additionally, you must be up-to-date with all your tax filing and payment requirements. Taxpayers who are involved in an open bankruptcy proceeding do not qualify.

You should be prepared to describe your financial situation in detail on the IRS settlement application. The IRS will evaluate your income, assets, expenses, and future earning potential. Keep in mind that submitting an Offer in Compromise (OIC) application does not guarantee the IRS will accept your offer.

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OFFER IN COMPROMISE SUCCESS STORIES

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The IRS will generally approve an IRS Offer in Compromise settlement (OIC) if the amount you offer is the most they can expect to collect within a reasonable time frame. However, your settlement offer will likely be denied if you’re able to pay your full tax debt through an installment agreement or lump sum.

PER 2016 IRS STATISTICS, THE IRS APPROVED 42% (APPROX.) OF ALL OFFER IN COMPROMISE SUBMISSIONS

You can use the IRS’s Offer in Compromise Pre-Qualifier Tool as a guide for determining your eligibility and preparing your proposal.

How to Submit an

Offer in Compromise

Your Offer in Compromise (OIC) application package must include the following items:

• Form 656 (Offer in Compromise) • Form 433-A or Form 433-B (OIC) (Collection Information Statement) • $186 application fee (non-refundable) • Initial offer payment (non-refundable) for Form 656

If you have both individual and business tax debts, you will need to submit two Forms 656 – one for your individual tax debt and one for your business tax debt. Each Form 656 will require a separate $186 application fee and initial offer payment.

Selecting an IRS Payment Option

You must choose a payment option and include an initial offer payment with your Offer in Compromise (OIC) application. The amount of your initial payment (and future payments) will depend on your total offer amount and the payment option you select. There are two payment options:

Lump Sum Cash Payment – This option requires an initial payment of 20% of your total offer amount. If/when your OIC is accepted, you must pay the remaining offer balance in 5 payments (or less) within the next 5 months.

Periodic Payment – This option allows you to pay in monthly installments. You must submit the first installment payment with your Offer in Compromise (OIC) application, and continue to pay monthly while the IRS evaluates your offer. If/when your offer is accepted, you must make monthly payments until the balance is fully paid (generally 6 to 24 months).

NOTE: Taxpayers who meet the Low Income Certification guidelines are not required to pay the application fee or send an initial Offer in Compromise payment. They are also exempt from making monthly installment payments while the IRS evaluates their offer.

For more information about OIC applications, see IRS Form 656-B (Offer in Compromise Booklet).

The Offer in Compromise (OIC) Process

Once you submit your Offer in Compromise (#OfferinCompromise), it will be reviewed by the IRS. The first part of the Offer in Compromise is sent to either the IRS facility in Tennessee or the IRS facility in Long Island, NY.

The IRS will be looking for paperwork errors. The IRS will be looking for these errors so they can reject the IRS settlement as "un-proccessable". Should the Offer in Compromise be rejected due to paperwork errors, the IRS will send the Offer in Compromise back to the taxpayer and will not tell the taxpayer why the submission was rejected. This initial process presently takes five (5) months.

There is no guaranteed time frame for an IRS response. Should you chose the periodic payment option, you are required to make monthly payments while the IRS considers your offer. If you fail to make those payments, your offer will be returned – and there’s no chance for appeal.

The IRS will continue to charge you penalties and interest during the Offer in Compromise (OIC) evaluation process.

Additionally, the IRS may file a ‘Notice of Federal Tax Lien’ during the offer investigation. Other collection activities will be suspended while your offer is being considered.

After your offer is submitted, you are expected to properly file and pay your taxes until the IRS makes a final decision. If your offer is accepted, you are also expected to stay up-to-date with all your tax filing and payment responsibilities for the next 5 years. Breaking the terms of your IRS tax settlement (by not fulfilling your tax obligations) means your offer may be defaulted – and you will be liable for the full/original tax debt, plus penalties and interest.

If your IRS tax settlement through the Offer in Compromise program is rejected, you are allowed to request an appeal within 30 days. To file an appeal with the IRS, use Form 13711 (Request for Appeal of Offer in Compromise).

If you don’t hear back from the IRS within 2 years after submitting a tax settlement, your Offer in Compromise will be automatically accepted.

The Offer in Compromise program can be very complicated. It’s generally recommended that you seek the advice of a tax professional like the IRS Tax Attorneys at Flat Fee Tax Service, inc. who have a proven track record of success.

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