If you owe money to the IRS in back taxes, penalties, and interest, you may be eligible for the IRS tax debt forgiveness program. The program, also known as an Offer in Compromise (OIC), allows taxpayers to settle their tax debts for less than the full amount owed. Here’s what you need to know about the IRS tax debt forgiveness program.
Eligibility Criteria for the IRS Tax Debt Forgiveness Program
To qualify for the program, you must be current with all tax filings and payments, not be in an open bankruptcy proceeding, and show an inability to pay the full amount owed. Additionally, you must meet one of the following criteria: doubt as to liability, doubt as to collectibility, or effective tax administration.
Types of Offers in Compromise
There are two types of Offers in Compromise: lump sum cash and periodic payment. The former involves paying the IRS a lump sum amount, while the latter involves regular payments over time. Both options have pros and cons, and it’s important to carefully consider which is the best fit for your situation.
Submitting an Offer in Compromise
To submit an Offer in Compromise, taxpayers must complete Form 656 and provide supporting documentation, such as proof of income and expenses. The IRS charges a non-refundable fee of $205 to process an Offer in Compromise, although low-income taxpayers may be eligible for a waiver of the fee. It’s important to note that submitting an Offer in Compromise does not guarantee that it will be accepted.
What Happens After an Offer in Compromise is Submitted?
After an Offer in Compromise is submitted, the IRS will review it to determine whether it is reasonable and in the best interest of the government to accept. This review process can take several months, and the IRS may request additional information or clarification from the taxpayer. If the offer is accepted, the taxpayer will be required to comply with certain terms and conditions, such as staying current on all tax filings and payments for the next five years. If the offer is rejected, the taxpayer has the right to appeal the decision.
The IRS tax debt forgiveness program can be a valuable tool for taxpayers who are unable to pay their tax debts in full. However, it’s important to understand the eligibility criteria and process for submitting an Offer in Compromise, as well as the other options that may be available. Taxpayers who need help navigating the process should consider seeking the assistance of a tax professional.