Are You Eligible to Settle Your Federal Tax Debt with an Offer in Compromise?

Posted in News on November 16, 2020 | Share

The Internal Revenue Service’s (IRS) offer in compromise program allows eligible U.S. taxpayers to settle their outstanding federal tax debt for less than the full amount they owe. If you are interested in submitting an offer in compromise to the IRS, your first step is to consult with a Washington D.C. tax attorney to determine your eligibility.

5 Eligibility Criteria for the IRS’ Offer in Compromise Program

Not everyone who is behind on their taxes is eligible to settle their tax debt through an offer in compromise. In order to submit an offer (and have it accepted by the IRS), you must meet the program’s eligibility criteria. For individual taxpayers, these criteria include:

1. You Cannot Pay the Full Amount You Owe

When submitting an offer in compromise, you must be able to prove that you have a legitimate justification for doing so. If you can afford to pay but simply prefer not to, the IRS is not going to accept your offer. This means that you must demonstrably be unable to pay what you owe—even if given the opportunity to pay in installments over an extended period of time.

2. Paying What You Owe Would Cause Undue Hardship

In some cases, the IRS will also accept an offer in compromise when paying the full amount due would result in undue hardship for the taxpayer. This requires evidence that paying in full, “would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.”

3. You Have Filed All of Your Tax Returns

Prior to submitting an offer in compromise, you must ensure that you are up-to-date on filing your tax returns (even if you have not paid or cannot fully pay what you owe). If you have failed to file any returns, the IRS will either reject your offer outright or require you to resubmit it once you have made all required tax filings.

4. You Have Not Filed for Bankruptcy

If you are a party to a pending bankruptcy proceeding, then you are not eligible to submit an offer in compromise. Similarly, if you file for bankruptcy while your offer in compromise is pending, this will result in the termination of your eligibility.

5. Submission of All Required Forms, Documentations and Payments

If you meet the eligibility criteria listed above, then you will need to comprehensively prepare your offer in compromise application. This includes completing all necessary IRS forms, compiling adequate documentation of your inability to pay, and submitting the non-refundable application fee and initial deposit.

Discuss Your Offer in Compromise with Washington D.C. Tax Attorney Kevin E. Thorn, Managing Partner of Thorn Law Group

If you would like more information about submitting an offer in compromise to the IRS, we encourage you to get in touch. To discuss your options with Washington D.C. tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group in confidence, please call 202-349-4033, email or contact us online today.

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