Hyden, Miron & Foster, PLLC Law Blog

Monday, October 8, 2018

What is an Offer in Compromise?

If you’ve ever received a notice from the IRS telling you that you owe more money, you know that sinking feeling in the pit of your stomach. You know the questions you start asking yourself -- How many more overtime hours will this take to pay off? How will I pay for my child’s college tuition? And more. While being under IRS scrutiny is never a comfortable thing, you may be able to take comfort in the IRS Offer in Compromise program, which provides relief to indebted taxpayers. It’s not as simple as filling out a form, so talking with an experienced offer in compromise lawyer is a good idea if you want to reduce your tax debt.

Reduce Your Tax Debt – As Seen on TV

Many purported “tax relief” companies tout the offer in compromise as a new, limited time gimmick. The truth is, the offer in compromise has been around for decades. Be careful when dealing with debt relief companies that advertise on late-night television. They like to promise big results quickly. Unfortunately, some of the less-scrupulous companies will do nothing but relieve you of your hard-earned money overnight.

The reality is, obtaining an offer in compromise is a lengthy process and is not guaranteed for all individuals with tax debt.

What is the Offer in Compromise Process?

The first step in applying for an offer in compromise is determining:

  • How much you owe in taxes
  • What your income is
  • The value of your assets
  • The value of your debts
  • Your future income prospects

These factors will determine what the monetary amount with which the IRS might be willing to settle your debt. The process typically takes about 6-months to 1-year.

Once you’ve submitted an offer in compromise, the IRS has 2 years to reject or accept the offer. If they fail to do so, then the offer is considered accepted. During the time that the IRS is considering your offer, you do not have to pay back taxes, but you do need to be sure to pay all current taxes, including quarterly taxes, if they apply to you. If you don’t do these things, the IRS will certainly reject your offer.

Additionally, when you submit your offer in compromise, you must pay a 20% deposit. The 20% is calculated as 20% of the total amount of a “lump sum” offer in compromise. If you request a “periodic payment” offer in compromise, you are required to pay the first payment with your application. Generally, the IRS requires the debt to be paid either as a lump sum, or over the course of one- to two-years. As long as the offer is being considered by the IRS, you must make all proposed payments to the IRS.

What Happens Upon Acceptance of an Offer in Compromise?

If your offer in compromise is accepted, you must stick to the payment plan and make sure you pay all taxes due, on time, for the next 5 years. Failure to abide by the IRS’ terms will result in the revocation of the offer in compromise and you will have to pay the full amount.

If you owe the IRS back taxes and are having a difficult time paying them off, contact the Arkansas tax lawyers at Hyden, Miron & Foster, PLLC today.

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