IRS issued Tax Tip 2024-37, April 24, 2024, to inform taxpayers that can’t pay their full tax debt or if paying would cause financial hardship, that they should consider applying for an offer in compromise which is a program that could provide an opportunity to eligible taxpayers to solve their tax debt with the IRS by settling for less than the full amount owed. The taxpayer must make an offer based on what the IRS considers the taxpayer’s ability to pay and submitting an application does not ensure that the IRS will accept the taxpayer’s offer. This is why the IRS recommends that filing for an offer in compromise ought to be done with the assistance of a licensed and reputable tax professional as there is a process of evaluation and verification by the IRS, taking into consideration any special circumstances that may affect the taxpayer’s ability to pay. Of note, submitting an Offer in Compromise with false information, or making a false statement to the IRS are considered fraud and may be subject to civil or criminal penalties.
Details of an Offer in Compromise:
- Before a taxpayer’s offer can be considered, a taxpayer must (1) file all tax returns you are legally required to file, (2) have received a bill for at least one tax debt included on the offer, (3) make all required estimated tax payments for the current year, and (4) if taxpayer is a business owner with employees, make all required federal tax deposits for the current quarter and the two preceding quarters.
- Although the IRS has an Offer in Compromise Pre-Qualifier, that works as a “guide”, it is best to work with a tax professional given that the IRS final decision is based on a completed offer application and an investigation by the IRS.
- Not eligible to apply if taxpayer or taxpayer’s business is currently in an open bankruptcy proceeding.
- Any open audit or outstanding innocent spouse claim issues before submitting an offer must be resolved.
- IRS will not consider an offer with a deactivated ITIN. If a taxpayer has a deactivated ITIN, Form W-7 (Application for IRS Individual Taxpayer Identification Number) must be filed, and ITIN must be
- IRS will not accept an offer if a taxpayer can pay their tax debt in full through an installment agreement or equity in assets.
- Penalties and interest will continue to accrue while a taxpayer’s offer is considered by the IRS.
- Taxpayers must continue to timely file and pay all required tax returns, estimated tax payments, and federal tax payments for the taxpayer and any business in which the taxpayer has an interest.
- Failure to meet a taxpayer’s filing and payment responsibilities during consideration of a taxpayer’s offer will result in the IRS returning the offer.
- If the IRS accepts a taxpayer’s offer, the taxpayer must continue to stay current with all tax filing and payment obligations through the fifth year after the offer is accepted.
Beware of Offer in Compromise ‘mills’ where promoters claim their services are needed to settle IRS debts as well as Robocalls
Offer in Compromise mills aggressively promote “offers” in misleading ways to people who clearly don’t meet the qualifications, frequently costing taxpayers thousands of dollars. Taxpayers that have pending tax bills ought to work with a tax professional and the IRS and not seek the assistance of tax companies that advertise claims of resolving unpaid taxes for pennies on the dollar while charging excessive fees. The IRS has the authority to settle, or “compromise,” federal tax liabilities by accepting less than full payment under certain circumstances. Nonetheless, there are tax promoters that advise taxpayers to file an offer in compromise application with the IRS, despite the fact that the tax promoters know the person won’t qualify. Moreover, taxpayers ought to aware that there is illegal robocalling that offers to “rapidly clear” the call recipient’s tax debt. Taxpayers receiving robocalls are asked to provide personal information, including dates of birth and social security numbers.
Best to work with an Experienced tax professional
IRS will evaluate and review offers in compromise applications and consider a taxpayer’s unique set of facts and special circumstances affecting their ability to pay, including their: income, expenses, and asset equity. Taxpayers ought to keep in mind that the IRS will contact them after the offer application has been reviewed and the IRS expects a prompt reply to any requests for additional information within the time frame specified. Failure to reply timely will result in the return of your offer without appeal rights. That said, Best to work with a tax professional.
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