IRS Offer in Compromise by Law Offices of Nick Nemeth
  • July 3, 2017
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According to a latest estimate from the IRS, the government loses around $458 billion dollars in unpaid taxes every year. Many delinquent taxpayers who owe the IRS huge amounts in unpaid taxes, whether individuals or corporations, are not always in a sound financial condition. Apart from using tax enforcement efforts such as audits to recover the money, the IRS also helps delinquent taxpayers mitigate financial hardships through programs such as the Offer in Compromise. The IRS Offer in Compromise is basically an agreement between the taxpayer and IRS to settle outstanding debts in exchange for an amount that is lower than what is owed. Though the program is effective in slashing a significant portion of outstanding debts, taxpayers need to approach the application process correctly to increase their chances of success.

The blog post is a step-by-step guide to filing for an IRS Offer in Compromise.

1. Gather Personal and Financial Information

Filing an Offer in Compromise is meant to eliminate outstanding tax debts. The IRS does not accept any random amounts when settling outstanding debts, such as “pennies for dollars”, and assesses a number of factors before they approve or decline an OIC claim. Calculating a reasonable offer amount is therefore, the first step to pacify the IRS into accepting your OIC. For that to happen, you need to gather essential personal and financial details such as investments, available credit, assets, income, gross income, and expense report for the IRS to accurately evaluate your offer. When you calculate the offer amount, keep in mind that college tuition fees, charitable payments, and unsecured debt payments are not factored in calculating expenses.

2. Fill Out the Required Forms

Submitting an OIC application requires taxpayers to furnish the essential personal and financial details in the prescribed forms. Taxpayers falling under different categories need to fill-in separate forms to apply for the IRS Offer in Compromise. All in all, there are three forms that must be duly filled-in and submitted to the IRS for evaluation:

Form 656

Form 656 is the main Offer in Compromise form that is supposed to be completed by any person or corporation filing for an OIC. The form asks for basic information about the taxpayer, the type of debt, and identifies the payment terms, should the IRS find your application reasonable.

Form 433 A

Individual wage earners, sole proprietors, or people submitting applications on the behalf of deceased individual taxpayers need to complete Form 433A. Once you submit the form, the IRS will come up with an offer amount after factoring your assets, income, expenses, and earning potential based on educational qualifications and experience.

Form 433 B

Form 433 B is exclusively meant for businesses filing for an OIC that, including Corporations, Partnerships, LLC classified corporations, and single or multi-member LLCs. In such instances, the IRS officials will evaluate the OIC claim to decide on an appropriate offer amount, depending on the assets, income, expenses and future earning potential of the business.

3. Attach the Required Documents

After completing the forms in your respective category, the job is only half done. The next step is to supply the necessary documents for the IRS to check the legitimacy of the information contained in each of the forms. Though Form 656 is common for all IRS Offer in Compromise applicants, suitable documentation needs to be attached with Form 433-A and Form 433-B. You can find the list of documents to be attached at the bottom of each form. When attaching documents, make sure that you attach scanned copies and not the originals.

4. Include a Check Covering the Application Fees

The IRS requires you to pay a non-refundable $186 application fee when filing an Offer in Compromise. On top of that, you are also expected to make an initial payment based on the payment option selected while filling out Form 656. The amount of the initial payment and whether it is going to be a one-time or recurring payment depends on the payment method selected by the OIC applicant. Include separate personal checks, cashier’s checks or money orders for making both payments. The application fee and initial payment are, however, exempted for people meeting the low income certification guidelines.

Things to Remember

Even after submitting an Offer in Compromise, the IRS may ask for additional information to evaluate the suitability of your application. Therefore, it is advisable to promptly reply to any such requests from the IRS within the stipulated timeline to keep your application on track. The IRS takes about 6 to 12 months to evaluate your Offer in Compromise application, after which they sending an Offer of Acceptance or Rejection, whichever is applicable. The IRS laws are quite complex and therefore, you should seek professional assistance when applying for an OIC to increase chances of acceptance. If you want to learn about IRS Debt Relief or the OIC Program, look no further than the Law Offices of Nick Nemeth. To get a no-obligation free consultation with Nick, fill out our contact form. You can also call us at (972) 426-2553.

For CPA’s and Attorneys: If you are in the Dallas, Ft. Worth and surrounding areas and need help with any of your clients, please do not hesitate to ask us for help.

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What Our Clients Have to Say

Susan WilsonSusan Wilson
03:27 25 Jan 23
I have been very pleased with the solid counsel and guidance that Nick Nemeth has provided me regarding my tax issue. I found him to be honest and straightforward which I appreciated. I was impressed with his relevant experience and knowledge . He has definitely brought me peace of mind during a difficult and stressful time.
Sarah HowardSarah Howard
03:44 14 Nov 22
I would like to thank Mr. Nick and his staff for the superb help that I received from them. My IRS problem was resolved quickly and efficiently. It took 2 visits to convince me that I was over my head. I thought that I could call the IRS, appeal my tax notices and settle on a payment plan on my own. After many phone calls to the IRS, waiting sometimes more than 4 hours with no resolution to speak of, it proved to be extremely difficult and stressful. Revisiting Mr. Nick was a huge wake up call. My account was reviewed, and a payment plan was established with the IRS within a week. I will be forever grateful to the staff who worked on my case and especially to Lorna who listened to me vent while going through this painful process.
00:33 07 Aug 22
I cannot say enough good things about Nick and his team. When I first met with Nick he was up front, honest, friendly and efficient. When I worked with one of his attorneys, Eric B, I was just as pleased. All of the staff there are nice and very helpful. I wish I hadn't waited so long to get help with my issue. Over 6yrs I tried getting through and getting anywhere with the IRS and hardly made any progress. I know this may not be the case for all, and even I thought it would take longer than it did, but 3mos and they had my situation straightened out. I still can't believe it. Thank you thank you THANK YOU for all that you did for me. This is a huge burden gone out of my life now thanks to you. If anyone needs help out there, I know you may not want to shell out more money to get their help but it may just save you in the long run.
Spoilly GirlSpoilly Girl
23:49 03 Aug 22
The Nemeth Law team is exceptional. They treat their clients like a family member who is in crisis. They want you to get the best possible outcome. I really appreciate everything that they did for me. Jake and Ashley had the greatest role in my case and it all turned out for the best for me. Thank you Nick and team for easing my fears and getting me through the long process. I'm truly grateful.
Eddie WaltEddie Walt
19:44 12 Jul 22
During a time in which competent, professional service at a fair price seems to have disappeared, Mr. Nemeth and his team are a refreshing breath of fresh air.From my first phone call to the final settlement of our case with a non-responsive IRS, they under-promised, over-delivered and were in constant courteous contact to make sure we knew exactly what was happening and where we stood.I hope to never need their services again, but, should I receive another friendly letter from the IRS...I know who to call!
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