Just like any other government or IRS program, you’ll be required to submit a form for the IRS to assess. You’ll want to review and complete all documents in the Form 656-B Booklet in order to be considered, and it’s best to seek the advice and guidance from an established tax solutions expert before you submit your Form 656. This booklet includes the following:
- Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms,
- Form 656(s) – individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656,
- $186 application fee (non-refundable),
- Initial payment for each Form 656 (non-refundable).
Your Offer in Compromise also entails submitting an initial payment option, outlined below.
Lump Sum Cash — This means you will submit an initial payment of 20% of the total offer amount with your application. If your offer is accepted, you’ll receive written confirmation (the IRS does not correspond over the phone, email, or social media). Any remaining balance due on the offer will then be paid in five payments or less.
Periodic Payment — You’ll submit your initial payment with your application, then continue paying the remainder of your debt in monthly installments while the IRS considers your offer. You’ll receive a decision in writing from the IRS, and then you’ll continue to pay monthly until your balance is paid in full, usually within six to 24 months.
Overall, the IRS expects that your initial payment will be equal to or greater than the value of your assets (owned property, vehicles, bank accounts, etc.) plus your anticipated future income less living expenses. The math involved here can be complex and confusing, so ask a certified tax solutions expert for help determining the best offer to make.
As you might expect, there are important details to consider while the IRS reviews your offer:
- Your payments and fees (non-refundable) will be applied to your tax liability. You may designate payments to a specific tax year and tax debt.
- A Notice of Federal Tax Lien may be filed.
- Other collection activities will be suspended.
- Your legal assessment and collection period will be extended.
- You must make all required payments associated with your offer.
- You won’t be required to make payments on an existing installment agreement.
- The IRS will review your finances for up to two years while they consider your Offer in Compromise.
- In the event the IRS fails to make a determination within two years of the IRS receipt date, your Offer in Compromise will be automatically accepted.
- You must not owe the IRS any tax liability for five years immediately following your initial Offer in Compromise.
- You are entitled to appeal the IRS’ decision.