Hyden, Miron & Foster, PLLC Law Blog

Sunday, November 14, 2021

What are the Requirements of an Offer in Compromise?

Taxes loom over the heads of every American. Dealing with the IRS is something most of us would like to avoid, but if you are having difficulty paying your taxes, then it might be in your best interests to work with the IRS and explore your options. In fact, one such option may be an offer in compromise. After all, the offer in the compromise IRS program is designed to help those struggling to make tax payments and make tax debt more manageable. In fact, a successful offer in compromise will allow a person to settle an outstanding tax debt obligation for an amount below that which they actually owe. While the odds may seem stacked against you in trying to get an offer in compromise approved by the IRS, it is not impossible. It is, however, important that you meet all requirements.

What are the Requirements of an Offer in Compromise?

There are only a handful of reasons why the IRS may end up granting an offer in compromise. One reason would be that there is a legitimate legal dispute as to whether you actually have the tax debt or the amount of your tax debt. Another reason an offer in compromise would be granted is if paying the full amount of the outstanding tax debt would create an undue economic hardship for a person or would be “unfair or inequitable” due to exceptional circumstances. The IRS may also grant the offer if there are legitimate doubts about whether it will ever be able to fully recover the outstanding tax debt from you. The IRS will consider a number of factors in these deliberations including your ability to pay as well as your other expenses.

In order to have your offer in compromise approved, you must meet the requisite qualifications as well as properly apply. To qualify for an offer in compromise, all necessary information must be included in the application and the applicant must be current on filing all tax returns. Furthermore, the applicant must have a minimum of one tax debt included in the offer in compromise as well as not being in a currently open bankruptcy proceeding. All required estimated tax payments must have been paid through the current year and all applicants need to continue to pay and file taxes while awaiting a response on an offer in compromise. If any of these qualifications are not met, the IRS will send the offer in a compromise application back. Additionally, the application will be sent back if your case has been sent to the Justice Department by the IRS or your tax debt is court-ordered. The good news is, however, that if your application is returned to you by the IRS, you can still re-apply after the issue has been properly addressed.

In order to apply for an offer in compromise, you will need to complete both IRS forms 433-A and 656. Should you have a reasonable belief that the tax debt does not actually exist or it does not belong to you, you also have the option of filing IRS Form 656-L. You must complete these forms in full and provide an extensive amount of information pertaining mostly to your level of assets and income as well as your outstanding debt obligations and other expenses. There is a $205 application fee which is required and non-refundable. It is possible to have this fee waived if you qualify under IRS low-income guidelines.

Tax Attorneys

Do not lose hope over unmanageable tax debts. You may still have a number of options available to you to get back on track. An offer in compromise is one of them, but there are more. Talk to the knowledgeable team at Hyden, Miron & Foster about your options. Contact us today.


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