The Offer in Compromise process is long and complicated.  If you owe back taxes and are not able to pay the full amount due, including interest and penalties you may want to consider requesting an Offer in Compromise as a last resort.

You should contact the IRS as soon as you realize you are not going to be able to pay your tax debt. You can set up payment arrangements including a monthly installment plan and the IRS is much more willing to work with you if you contact them and are proactive.  However, if you did not contact them before your due date and have delinquent taxes weighing on your mind, and are experiencing a financial hardship, an Offer in Compromise may be your answer.

How does an Offer in Compromise process work?  First you will need to be able to prove that you are not able to pay the amount owed today and within the next 24 months.  The Offer in Compromise process is not a way to erase your debt, but rather an offer to pay less than the total amount owed.

There are specific forms that must be filled out, they include Form 656, Form 433-A, and in order to calculate the amount you are offering to pay you will need to fill out Form 433-A worksheet.
You must also be willing to abide by the contractual terms included with the Offer in Compromise process.  Some of those include:

• Pay the amount you are offering in your Offer in Compromise
• File all returns and pay all future taxes on time for the next five years
• Allow the IRS to keep any and all tax refunds, payments and credits applied to your tax debt prior to the submission of your Offer in Compromise

These are just a few of the terms you must accept before you choose to request an Offer in Compromise.  If you can’t meet these terms or at any point fail to meet these terms the IRS can (and always do) revoke the Offer in Compromise and reinstate the original full amount owed.

The Offer in Compromise process can take anywhere from one to two years to complete. This time frame allows you the taxpayer 1-4 months to prepare the proper documentation required. The IRS usually takes 13-18 months to process an Offer in Compromise and then they allow 1-3 months to finalize the offer.

You should be aware that typically only about 16% of all Offers in Compromise received by the IRS are actually approved.  It is imperative that you hire a tax professional to assist you not only in your communication with the IRS but also with all of the documentation that will be needed to even begin the Offer in Compromise process.

Should your offer be denied a tax professional can also assist you in finding other options that may be available to help resolve your specific situation.