IRS Compromises for Tax Debt

The IRS has a program entitled Offer-in-Compromise (OIC) to help you settle your tax debt for less than the full amount owed; the program has been around for a long time but recently they announced program improvements potentially increasing the chances of your payoff offer being accepted.  To qualify, you must 1) file all tax returns for the years in question, 2) make any required estimated tax payments for the current year and 3) make all required federal tax deposits for the current quarter if you’re a business owner with employees.

Most likely the offer-in-compromise will be accepted only if the amount offered by the taxpayer is equal to or greater than the “reasonable collection potential” (RCP).  The RCP is the most the IRS can expect to collect based on the taxpayer’s income, expenses, assets which include items such as vehicles, bank accounts, real estate (and the like); plus any anticipated future income.

The latest change in the OIC program provides a discount on market value on both tangible and  intangible assets.  This means previously if you had an investment account worth $100,000 it is discounted to $80,000 and your RCP is reduced.  The taxpayer makes an offer to the IRS by submitting Form 656 and you must choose your payment option:  1) include a payment equal to 20% of a lump sum offer, or 2) for periodic payments, you must pay the first installment (with some exceptions).  Additionally, expect to pay an application fee of $186 when submitting to the IRS.

Submitting an application does not ensure that the IRS will accept your offer.  Penalties and interest will continue to accrue during the offer evaluation process. Companies currently in an open bankruptcy are not eligible to apply.

Ask a KRD team member how we may be able to help you settle your tax debt.

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