If you’ve accumulated a large tax liability, you may have received a notification stating that the IRS will place a levy on your bank account to collect a tax balance. There are ways to resolve your tax liability and get a fresh start. One way is through the IRS offer in compromise program — nicknamed the “Fresh Start” program. Read on to learn what the Fresh Start tax program is and how you can get tax relief.
An offer in compromise (OIC) is an amount less than your full outstanding tax balance that the IRS accepts as a settlement of your unpaid taxes. If you meet the requirements and follow the process correctly, an OIC can clear your tax balance without you having to pay the full amount you owe.
The offer in compromise program has been around for quite a while as part of the Fresh Start IRS program. This is a program that helps taxpayers pay off their taxes and get a fresh financial start. It makes room for offers in compromise as well as installment agreements.
If you make an offer in compromise, the IRS will evaluate your income, assets, monthly expenses, and your overall financial picture to figure out if you can pay your balance or not. Since 2012, the IRS may only look at your financial picture over the last 12 months to decide this. Before 2012, the IRS would look at the previous five years. This is a major change that may improve your chances for approval if you’ve had a sudden drop in income.
There are three reasons the IRS might decide you can’t pay your full balance, leading them to accept an OIC:
If you see ads talking about paying your IRS balance for pennies on the dollar, they’re actually referring to the OIC program. But it’s a long and often difficult process, and acceptance is not guaranteed. In 2023, the IRS accepted around 42% of the OICs they received.
Though the IRS rejects most OICs, it still approves thousands each year. Follow these tips to help get your offer approved.
There are strict guidelines that the IRS uses to determine if you qualify. You must have filed all of your taxes, paid your estimated taxes and not be in the middle of a bankruptcy proceeding. Additionally, if your OIC is for the current tax year, you must have a valid extension for that year’s return. If you’re filing a business return, you must have made quarterly tax deposits for the current quarter and the previous two quarters.
You can see if you qualify by using the IRS Pre-Qualifier Tool on their website. This is a general guideline that can help you determine if you qualify. Every situation is different, though, so you should consult with a tax professional to be sure whether you qualify or not.
There is a lengthy application process. The good news is that once you file your application, the collections activity will cease until a decision has been made. But you don’t want to submit an offer in compromise just to get collections activity to stop. The IRS will see through this and resume the collection process.
There are several forms that you need to fill out. Individuals must complete Form 656 and Form 433-A. If you have a business such as a corporation, you must fill out two copies of form 656 — one each for you and your business — and form 433-B. You must pay application fees along with these forms.
The best way to get an offer approved is to work with a tax professional. Your offer in compromise application will be assigned a case manager at the IRS. They’ll review your information and decide if your tax liability is collectible.
An experienced tax professional may have worked with your case manager on other offer applications. That knowledge may be valuable because they know what the case manager is looking for and how information should be presented on your application.
A tax professional will also review your application before it’s submitted. This can prevent your offer from being rejected simply because the application wasn’t completely filled out. A blank line, even when the amount is zero, could get your offer rejected.
Once you’ve submitted an offer in compromise to the IRS, you wait. You’ll get a notification from the IRS stating that they received your application. They may give you a timeline as to when you could expect a response. Ensure the IRS has your up-to-date contact information so you don’t miss any important requests or notices.
You may get a notice from your case worker asking for more information. If you do, it’s important to respond promptly so the process can move forward.
An offer in compromise can be returned to you, outright rejected or accepted.
If your offer is accepted, you have a reason to celebrate. You also agree to pay the amount you offered and file taxes on time for the next five years. You have to notify the IRS of any changes to your information, including address changes.
Your offer may be returned if you were missing documentation or your application was incomplete. You want to fix any errors and get your application back in as soon as possible.
Many offers are rejected. You can file an appeal to the IRS within 30 days. You may have to revise your offer or provide more documentation to prove that the IRS made a mistake in rejecting your offer.
The entire offer in compromise process, including the appeal stage, can take anywhere from six months to more than two years.
Still have questions about the IRS offer in compromise program? You may find your answer here or by consulting a tax resolution attorney with experience negotiating OICs.
If the IRS insists you are able to pay your tax balance in full and won’t accept an OIC, you may disagree. You can bring evidence to the IRS employee investigating your offer to show them why their valuation was mistaken. A tax resolution attorney can help you evaluate whether this is possible in your case and gather compelling evidence.
If the IRS is open to accepting an OIC from you but says your offer is too low, they will calculate an acceptable amount and give you a chance to increase your offer. A tax resolution attorney may be able to negotiate on your behalf in this scenario.
Yes. Even if you don’t qualify for an OIC, you may be able to apply for an installment plan to pay your balance over time. Other options include asking to delay collection or disputing your tax bill. In some situations, if your bill includes penalties for failing to file or pay on time, you can apply to have these waived.
Polston Tax Resolution & Accounting has been helping people resolve unpaid taxes since 2001. Today, our full-service tax and accounting firm serves clients nationwide. Our team has over 100 years of combined experience, and our tax resolution services have saved clients tens of millions of dollars through offers in compromise, installment agreements, penalty abatements and other resolution strategies.
The professionals at Polston Tax excel in various tax and accounting disciplines and collaborate to understand each resolution challenge. Offers in compromise are one of our primary focus areas, and our team has invested countless hours in research, consultations and negotiations to master strategies for successful OICs. We combine regulatory knowledge with extensive experience working with the IRS. Numerous awards recognize our firm’s excellence in tax resolution.
If you have a tax burden, you could get a fresh start by filing an offer in compromise. But if the IRS rejects your offer, they will continue to collect on your balance. Your best chance to get approved is to work with a team of tax professionals who understand the process. At Polston Tax, our experienced tax resolution attorneys can leverage their expertise to ensure your OIC meets all requirements and negotiate with the IRS on your behalf.
Contact us today to find out more about resolving your tax liability.
