Offer In Compromise Frequently Asked Questions

Offer In Compromise Frequently Asked Questions –  Just about everyone that calls our office with a tax debt wants to discuss an Offer In Compromise.  The truth is that not everyone qualifies for an Offer in Compromise.  Yes…. you actually have to qualify for an Offer in Compromise before the IRS will agree to discharge a debt you would otherwise be obligated to bay.  Since many of the questions that are asked by our clients are very similar, we have provide some Offer In Compromise Frequently Asked Questions.

Do I Qualify for the Low Income Certification?

You qualify if your adjusted gross income (AGI), as determined by your most recently filed income tax return (Form 1040 or 1040-SR), is less than or equal to the amount shown in the chart on Form 656, Section 1, based on your family size and where you live. Taxpayers who do not qualify based on the AGI may request a waiver based on their current household’s gross monthly income from Form 433 (OIC) x 12.

If you qualify, you are not required to submit any payments of the application fee upon submission or during the consideration of your offer.

What Happens if I do not Calculate my Offer Right or My Offer in not High Enough?

The IRS will figure the correct offer amount. If it is more than what you offered, and you have no special circumstances, the IRS will give you an opportunity to increase your offer amount. If you do not, the offer will be rejected. If the IRS finds you can full pay the liability, you can request an installment agreement.

The IRS reviews OICs for possible fraudulent intent. Submitting an OIC with false information, or making a false statement to an IRS employee, is considered fraud and may be subject to civil or criminal penalties.

Do I Need to Keep Paying my Installment Agreement While my Offer is Being Processed?

No. If you have an installment agreement in place, you do not have to make payments while your offer is being processed. If your offer is not accepted and you have not incurred any additional tax debt, your installment agreement with the IRS will be reinstated with no additional fee. 

Can the Levy on my Account be Released?

There is no requirement to release a levy that was served prior to the offer submission. Your circumstances will be considered when determining to release or keep the levy in place while the offer is pending. We may be able to remove the levy if it was placed on your account after the IRS received date of the offer in compromise.

When Should I file a Doubt as to Liability Offer in Compromise?

Prior to filing a Doubt as to Liability Offer in Compromise you should understand the difference between doubt as to liability and doubt as to collectability. Understanding this difference will help you determine which application form is the most appropriate for your situation.

Doubt as to liability is when there is a genuine dispute as to the existence or amount of the correct tax debt under the law. If you have a legitimate doubt that you owe part or all of the tax debt, you will need to complete a Form 656-L, Offer in Compromise (Doubt as to Liability) (PDF) PDF.

Doubt as to collectability is when you agree with the amount due, however you are unable to pay the entire amount owed. If you are unable to pay the amount you owe through an installment agreement and/or equity in your assets, complete Form 656- Offer in Compromise located within Form 656-B, Offer in Compromise Booklet (PDF) PDF.

I disagree with the IRS valuation of my ability to pay. What should I do?

You may provide additional verification or documentation to support a different valuation to the employee investigating your offer. At any time, you may ask for a telephonic conference with the offer manager to discuss areas of disagreement. Additionally, certain disputes may qualify for Fast Track Mediation which allows for an expedited review of a specific area of disagreement. The mediation is not binding on either party, and certain cases and issues are not eligible. For more information, see Fast Track Mediation.

I’m currently in bankruptcy, can I file an offer?

No, we are unable to consider an offer while there is an open bankruptcy; once it is discharged and closed, you can file an offer.

Do I need to file all required tax returns before submitting an offer?

You must file all tax returns you are legally required to file for personal or business taxes. If you have a valid extension and have made your required payments, you are considered current for that unfiled return. The extension doesn’t extend the time to pay taxes, only to file the return.

Can I send one offer form to compromise both my business and personal taxes?

One form may be used if your business is a sole proprietorship linked to your SSN. A separate offer, with application fee and offer payment, is needed if your business is not a sole proprietorship linked to your SSN.

If my spouse doesn’t owe the taxes, do I include their income in my 433-AOIC?

Yes. You will need to gather information about your household’s average gross monthly income and actual expenses. The entire household includes all those in addition to yourself who contribute money to pay expenses relating to the household, such as rent, utilities, insurance, groceries, etc. This is necessary for the IRS to accurately evaluate your offer. It may also be used to determine your share of the total household income and expenses.       

My offer was returned, what can I do now?

You should review the letter for the reason(s) your offer was returned. If the reason for the return is later rectified, you may submit a new offer with the application fee and required initial payment.

My offer was rejected, what options do I have?

If you disagree with the rejection, you have 30 days from the date on the rejection letter to appeal by following the instructions in the letter. If you agree with the rejection, you can send full payment of your tax debt to avoid additional interest and penalty, or request an installment agreement to pay your tax debt.

What if my offer was accepted however I did not receive an acceptance letter?

A copy of the acceptance letter is in the offer case file, which has been forwarded to the Federal Records Center. You can request a copy through the Freedom of Information Act by contacting your local IRS office.

Where do I send my payments?

Once your offer is accepted all offer payments should be mailed to:  IRS-OIC, PO Box 24015, Fresno, CA 93779 Note: Be sure to include your Offer Number and SSN or EIN on the payment.

Why didn’t I receive my refund?

As part of the accepted offer agreement the IRS will keep any refund, including interest, for taxes due through the calendar year that the offer was accepted.

For example, if your offer is accepted in 2018 and you are due a refund when you file your 2018 Form 1040 or 1040-SR on April 15, 2019, the IRS will apply your refund to your total tax debt. This refund will not be counted as a payment toward your accepted offer amount.

Is my tax refund part of the offer payment?

No. The refund that is retained as part of the offer agreement is applied to the overall tax debt and is not considered a payment toward your accepted offer amount.

Can I add this current year balance into the offer?

No. Once your offer is accepted, additional tax balances cannot be added to the offer and must be paid in full or the offer will default. Note:  Installment agreements are not allowed with new balances.

What happens if the offer defaults?

When an offer defaults, the IRS may levy or file suit to collect the entire balance of the offer or an amount equal to the original tax debt less any payment(s) received under the terms of the offer. All penalties and interest will be reinstated. Liens and levies may be placed on the account.

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