An offer in compromise is a legal agreement between you and the IRS that settles your tax debt for less than the full amount you owe. It provides you with a path for paying off your tax debt and getting a “fresh start.” If you have unpaid tax debts, here are eight things you need to know about the IRS’s offer in compromise program:
- The IRS can settle any civil or criminal tax case via an offer in compromise prior to referral to the Department of Justice for prosecution or defense.
- The IRS generally cannot levy or take your assets while your offer in compromise is pending or is in effect unless the collection of tax is in jeopardy.
- There are three types of offers that you can make:
- Doubt as to liability (which is used when there is a genuine dispute as to the amount of or your liability for the tax debt),
- Doubt as to collectibility (when your assets and income are less than the full amount of the tax liability and you cannot pay the tax in full), and
- Effective tax administration (if the tax could be collected in full from you, but it would cause economic hardship for you).
- The second and third type of offer has to be submitted with a nonrefundable partial payment. It can be a lump sum payment, which means the offer amount is paid in 5 or fewer monthly payments, or a periodic payment, which means the offer amount is paid over 6 to 24 months. These payments must be made while the IRS is evaluating the offer.
- Penalties and interest continue to accrue on your account while the IRS evaluates the offer.
- Your offer may only be accepted for assessed taxes, not future unassessed taxes.
- If you have an open bankruptcy case, you are not eligible for an offer in compromise.
- The IRS will keep your tax refunds that are payable prior to the time the IRS accepts your offer.
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