In previous articles a tax attorney at The McGuire Law Firm has explained what an offer in compromise is and how an offer in compromise is calculated. While we hope these articles have been helpful, we also thought it may help to outline the general procedure of preparing and submitting an offer in compromise to the IRS.
The first form to complete in moving forward with an offer in compromise would likely be Form 433A OIC if you are looking to settle an individual income tax debt. However, if you own any interest in a business, you will also need to complete Form 433B or 433B OIC. If the tax liabilities you are attempting to settle are business taxes such as 1120, 941 or 940 tax liabilities, you will need to complete Form 433B OIC. Further, it is important to note that if you have 941 (employment taxes) tax liabilities, the Internal Revenue Manual requires that a revenue officer make a determination on the personal assessment of the trust fund recovery penalty, prior to the IRS Offer in Compromise Unit being able to process an offer in compromise. The trust fund recovery penalty is the penalty assessed to the willful and responsible parties- those who have failed to pay the 941 taxes to the IRS. Thus, if the business has 941 debts, but a revenue officer has not personally assessed the trust fund or made a determination regarding the assessment of the trust fund, your offer in compromise would likely not be processed, and the offer would be returned, with no appeal rights. After you have prepared the financial statements, it is vital that you compile all of the necessary attachments to accompany the statement. These attachments are stated on the form, and you need to determine which attachments apply to you based upon your circumstances.
After you have completed Form 433A OIC and/or Forms 433B/433B OIC you should be able to tell what your offer amount is. Thus, it is now time to prepare Form 656. Form 656 is the form used to more or less propose the offer in compromise to the IRS. Form 656 states the taxpayer attempting to settle their tax debt, the periods of tax debt that the taxpayer is attempting to settle, the taxpayer’s reason for the offer in compromise, the amount of the offer proposed, the payment terms of the offer and you can make the request to have the $150 offer in compromise application fee waived if you fall under certain income amounts. When completing Form 656 you will want to state all periods of debt that you currently owe taxes on. Generally, there are two options to propose in regards to how you will pay your offer. Option one would be a cash offer whereby you would pay 20% of the offer amount when you submit the offer in compromise, and then propose a schedule to pay the remaining amount in five or fewer payments if the offer is accepted. Option two is to make payments over 24 months. Thus, you divide the total offer amount by 24 and you make the first payment when you submit the offer in compromise and continue to make a monthly payment based off of the proposed offer as the offer is being reviewed by the IRS.
Now that you have the proper financial statement(s) completed with all necessary attachments, Form 656 and the necessary checks (you will need a check for $150 for the application fee if it cannot be waived and either the 20% down payment or initial 1 of 24 payments) it is time to mail your offer in compromise to the offer unit. When mailing the offer, there are two IRS Offer in Compromise Units, one in Memphis, TN and one in Holtsville, NY. The unit you will mail your offer depends upon where you live, and you can check the Instructions to Form 656 to see which unit you need to forward you paperwork too.
A Denver tax attorney at The McGuire Law Firm can assist you with preparing and submitting an offer, and the offer negotiations if you feel you need help. As a tax attorney, John McGuire has prepared and submitted many offer in compromises and his acceptance rate is above 90% over the prior 2 years.