Taxation & Estate Planning

IRS Offer in Compromise - Is it the right answer for you?

By Darrin Mish

If your IRS Problems are escalating and you owe back taxes, you might want to explore the possibility of an Offer in Compromise (OIC).  This agreement made between you and the IRS helps you resolve your tax debt. 

The IRS has three criteria for an OIC.  You must meet one of these to apply.

•    Doubt as to collectibility: The IRS has determined that you will not be able to pay your back taxes now or in the future.

•    Doubt as to liability: There is a question as to whether you owe the back taxes.

•    Hardship on family: Funds are available to pay your back taxes but it would put a hardship on your family.

Form 656(Offer in Compromise)

You will also need to fill out Form 656 (Offer in Compromise).  This form requires basic information, i.e., name, address, SSN, etc. but also requires you to identify your unpaid liabilities to be compromised. 

You will need to list all the taxes you might possibly owe. 

You will also need to list “Doubt as to Liability” or “Doubt as to Collectibility” on this form. 

You will need to determine the amount you are offering the IRS and include that amount on the form.  You should include both the equity or your assets and your average monthly income minus your necessary living expenses and then multiply by 48 or 60 months or the life of the collection statute in this amount. 

You will need to sign and date the form. 

Form 433-A(Collection Information Statement)

Form 433-A(Collection Information Statement) is for individuals.  (If you are submitting an OIC for a business you will use Form 433-B.) This form is used only if you are submitting an OIC based on “Doubt as to collectibility” and must accompany Form 656.  Fill out all the blocks on the form.  If the item does not pertain to you, fill in N/A.  This form also requires documentation showing verification of values of assets, encumbrances, and information on income and expenses.

Detailed Explanation

If you are submitting an OIC based on “Doubt as to liability” you will need to us a form 656-L.  You will need to submit a detailed explanation of why you feel you do not owe the taxes. 

If you want to investigate the possibility of an OIC to help you solve your IRS Problems, our office can help guide you through the process.  Contact us today.  

Full post as published by IRS Problem Solver Blog on March 26, 2008 (boomark / email).