How to Qualify for an Offer in Compromise

In the United States, the average tax debt is $16,849. Not being able to afford your taxes is much more common than many people think, and it is quite easy to see it accumulate before you can get it under control.

If that is the case for you, you should first and foremost that you are not alone. Secondly, you should know that you have options. Applying for an IRS offer in compromise is one of them.

Keep reading to learn what this is, and how you can qualify for it.

What Is an IRS Offer in Compromise?

An offer in compromise to the IRS is a program that allows those with certain tax debts to settle their debt by paying less than is due.

There are strict qualifications and application instructions, and most applications are denied by the IRS.

Application Instructions

There are three main parts to IRS offers in compromise.

First, you’ll need to fill out forms 433-A and 656. This will require you to provide in-depth information regarding your income, assets, other debt, utility bills, grocery bills, rent bills, and so on.

Then, you’ll need to submit the $205 application fee. This can be waived if you meet the low-income criteria.

You must also submit a payment towards your new balanced owed. It must be at least 20% of your new balance. This is non-negotiable.

Qualifications to Apply

There are many things that can disqualify you before you even get the chance to fill out your application. Indeed, before applying, it’s wise to make sure that you do potentially qualify for acceptance.

If you are behind on your tax returns, are in a bankruptcy proceeding, or have court-ordered tax debt, you do not qualify.

If you do not fill out your entire application or provide every single piece of necessary information, you could be denied. If you do not include your application fee or the payment towards your balance, you could be denied.

It is wise to work with a tax professional or tax relief services to help you sort everything out, ensuring that you have the best chance possible of receiving that “yes” from the IRS.

Qualifications for Acceptance 

Once you get passed the application steps, the IRS will determine your “reasonable collection potential” (RCP). This is the amount of money the IRS expects to be able to receive from you both now and in the future.

They take into account your past, present, and future income, as well as the car model you drive, your basic living expenses, and other factors. If you do not propose an offer that is equal to or greater than your RCP, the IRS will reject it.

Your offer may be accepted if:

  • You meet this RCP guideline
  • There is a legal dispute surrounding whether your tax debt exists or belongs to you
  • Paying your tax debt in full would put you into economic hardship
  • The IRS doesn’t think they’ll ever be able to get the full amount from you

If you do get accepted, you can either pay the new amount agreed upon in a lump sum within five months or pay it in monthly installments for up to 24 months.

Could You Benefit From an IRS Offer in Compromise?

An offer in compromise can give you that peace of mind knowing that your debt is more manageable. However, it isn’t easy to qualify, so it will take doing the tedious work of collecting all your data and paperwork to prove why you deserve it.

Once you do that, all you can do is wait and keep hoping!

If you’d like to take a break from tax talk, browse through our lifestyle articles now!