Carrying long-term debt is a challenge, but when the money is owed to the government and you see no way to pay what you owe, it can bepsychologicallyand emotionally debilitating. Some people think they can turn to bankruptcy, but that is not the case – bankruptcy specifically will not discharge tax debts. One of the few options available for settling tax debt is an IRS program called an Offer in Compromise, or OIC.
An OIC is not something that the IRS agrees to lightly. Roughly one in three applications for the program are approved. Still, it may be worth your time and effort to determine whether you qualify.
The Three Steps to Applying for an Offer in Compromise
- Fill out IRS form 433-A and IRS form 656. If you plan to appeal the debt itself, you will also need to fill out IRS form 656-L.
- Pay the nonrefundable application fee of $205. If your income is below the IRS low-income guidelines, the fee may be waived.
- Propose paying an alternative amount to the IRS
This is a simple summary of a complex process that requires providing a significant amount of detail about your income and expenses. Though the form asks for a lot of information, the more diligent you are in demonstrating your inability to pay both your bills and your tax debt, the better your chances of being approved. It is also notable that 20% of the amount that you are offering to pay within your application must be included with your application in order for it to be considered. If your Offer in Compromise is rejected, the money will be applied toward your debt.
Eligibility for Applying for an OIC
Qualifying for an OIC is difficult in large part because the IRS has such strict rules about who is eligible to apply, as well as regarding what is needed to qualify.
Let’s look at the question of whether you can apply first. In order for your application to be accepted, you must make sure that you meet the following criteria:
- You have answered all questions on the forms
- You are current in having filed your tax returns
- You must have submitted the $205 application fee or successfully had it waived
- There must be at least one tax debt in your Offer in Compromise for which you have not received a bill
- You must have submitted all of your estimated tax payments for the current year
- You must not be in the midst of a bankruptcy proceeding
- You must continue paying taxes and filing your tax returns while the IRS response to your offer is pending
- Your case cannot have been sent to the Justice Department by the IRS
If any of these items are not in evidence, the IRS will send your application back for correction and resubmission.
