Settle For Lesswith The IRS - Page 2 of 3

Settle For Lesswith The IRS

can expect the government to process your application. It is not unusual for the IRS to take a year or more. If the IRS accepts your offer or you accept its counteroffer, all interest and penalties are included and the debt is wiped out.”

The IRS will only consider an Offer in Compromise after all other payment options have been exhausted. “A taxpayer owing federal taxes should first look at ways to pay the liability in full. Perhaps the taxpayer can borrow money by refinancing their home or obtaining a loan from a financial institution,” says Michael McDermitt, national program manager of the Offer in Compromise Program for the IRS. “Other options include liquidating assets such as stocks or bonds, cash advances on credit cards, borrowing against 401(k)s or life insurance policies, or borrowing against equity in other assets.”

The IRS encourages the taxpayer to pay as much of the bill as possible to reduce the amount of penalties and interest owed. Depending on the circumstances, individuals may qualify for an extension of time to pay. The taxpayer can request an extension from 30 to 120 days.

Finally, before an Offer in Compromise will be considered, the last alternative would be an installment agreement. For taxpayers owing $25,000 or less in taxes, Form 9465 needs to be completed. For those owing more than $25,000, Form 9465 and Form 433-F are required. To secure the government’s interest in the individual’s real or personal property until after the final payment has been made, the IRS may file a Notice of Federal Tax Lien. This, of course, can negatively affect one’s credit score. Once the taxpayer has exhausted all these options, an Offer in Compromise will be considered.

When applying for an Offer in Compromise, a $150 application fee must be paid, all federal tax returns must be filed, employment tax returns must be filed and paid on time for the prior two quarters, and you must not be a debtor in a bankruptcy case. In some cases, it is possible to have the $150 application fee waived. Taxpayers may be exempt from paying the application fee if they meet one of two criteria: the Offer in Compromise is submitted based solely on doubt as to liability or the taxpayer’s total monthly income falls at or below income levels based on the Department of Health and Human Services poverty guidelines. Taxpayers meeting this criteria must submit Form 656-A, Offer in Compromise Application Fee Instructions and Certification.

The IRS absolutely will not negotiate a tax bill with you unless all of your tax returns have been filed. Also, if you have filed for an extension, your offer is not likely to be considered until the return on the extension is filed. According to the IRS, a taxpayer should be able to prepare the Offer in Compromise packet on their own by being “patient and thorough” in completing the application. The agency attempts to have these packets completed within six to nine months. If the taxpayer owns significant assets