The Internal Revenue Services, or IRS, is the government agency responsible of tax collection and the enforcement of tax law, but what happens when an individual or business is unable to pay their tax debt? In some cases, an offer in compromise may provide relief.
An offer in compromise is designed to allow those who cannot pay off their tax debt in its entirety an opportunity to pay off as much as possible. This allows the taxpayer to settle the tax liability with an amount less than actually owed and the IRS to get at least some payment without years of expensive collection efforts.
Offer in Compromise: The basics.
When considering an offer in comprise, the IRS reviews the applicant's ability to pay, income, expenses and asset equity. Those who apply for this form of tax relief are required to submit an offer in an Offer in Compromise Booklet, or Form 656-B. This booklet requires additional forms, such as 433-A for individuals or 433-B for businesses, Form 656(s) for tax debt as well as a $186 application fee.
When applying, the applicant can chose between making the offered tax payment in either a lump sum or as a periodic payment. If choosing a lump sum, the applicant must include 20 percent of the total offer amount with the application package. If choosing the periodic payment option the IRS states that the applicants should submit the initial payment with the application and continue to pay monthly installments while the application is reviewed.
If the offer is accepted, any refunds due that same calendar year are applied to the tax debt and federal tax liens remain until the offer terms are met. If the offer is rejected the applicant can file an appeal. This appeal must be filed within 30 days using Form 13711, also known as the Request for Appeal of Offer in Compromise form.
Offer in compromise: The reality.
Unfortunately, according to the Treasury Inspector General for Tax Administration a weak economy and a lack of adequate staffing have led to a backlog of offer in compromise requests. This will likely increase, as the IRS recently altered the offer in compromise process. The changes are intended to ease the requirements and increase the chances of acceptance.
Although adjustments have recently been made to the process, those filing for relief are encouraged to keep current on changing laws. This is particularly true with the upcoming shift of power in Congress, which is likely to lead to even more changes. Republicans will soon have the majority, and will likely be able to push through laws that will directly impact this process.
These are just a few of the many reasons that those struggling with tax debt are wise to seek the counsel of an experienced tax debt settlement attorney. This legal professional can review your case and guide you through your options, better ensuring a more favorable outcome.
Keywords: tax law