IRS Rules for Filing an Offer in Compromise

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When filing an offer in compromise, there are a few qualifications that have to be met, such as exhausting all other payment options and not being a debtor in bankruptcy proceedings. Learn about the three categories of offers in compromise with information from an independent CPA in this free video on tax help and IRS rules.

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Video Transcript

My name is Miranda Chook and I'm a CPA. Offers and compromise are an agreement between a taxpayer and the IRS to settle the outstanding taxes due for an amount less than the full amount. There are generally three categories of these types of offers and compromise. One is that there may be doubt as to collectibility. It may be that there is no way that a taxpayer can ever pay in a lump sum or in installment payments over the statutory collection period could every pay back the outstanding tax. There's also the circumstance where there's doubt as to the liability. There may be legitimate doubt as the accuracy of it. This occurs when the tax examiner may have misinterpreted the tax code, may not have considered the taxpayer's circumstances or the taxpayer has new evidence. And the third category is basically exceptional circumstances. Perhaps there is an agreement between the taxpayer and the IRS that yes, this tax is due, it's calculated correctly and there's even potential to collect it. But, the IRS can determine that perhaps the situation would cause undue economic hardship if the about due really was collected, or some other kind of inequity. Now there are a few qualifications that you have to meet for this offer and compromise. One is that you have to have exhausted all other payment options. Whether it be the lump sum, installment, getting a loan from a bank, credit card, etcetera. So all of those avenues have to have been exhausted. Secondly, you cannot be a debtor in bankruptcy proceedings. Now if you meet these qualifications, then you can use form 656a and include with that form a lump sum or a periodic payment that you are going to offer as this lesser amount to the IRS. So if you find yourself in this situation, you may contact the IRS directly and at some point you're going to need to or you can use an experienced financial adviser to help you navigate this in your discussions with the IRS.

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