However, statistically, the odds of getting a compromise offer from the IRS are quite low. If you have a serious tax debt with the IRS and you think you can't pay the full amount of the tax bill, you have the option to request a reduction or even the elimination of your tax debt completely. The first step is to submit a request for an offer of commitment and complete the appropriate Form 656. This form is the one that the IRS will use to determine your ability to pay the debt in full or if you should be granted a reduction in the total amount. Many people have seen the various national tax agencies on daytime television offering to settle their tax debt for cents on the dollar.
However, what doesn't appear in their sales pitch is that nearly 80 percent of the IRS's compromise offers are rejected for a variety of reasons. This isn't all bad, but it does require some strategic planning on the part of the taxpayer. The IRS Compromise Offer (OIC) has always been a program that generates a lot of controversy and confusion. Before submitting a commitment offer with a liability question, you should understand the difference between the liability question and the collectability question.
If you do it less than a month after the first offer, you don't need to file a new Form 656, just a letter increasing the amount of money you offer. With so many factors that can affect a person's specific case, how they interact with the IRS during the OIC offer resolution process will go a long way toward obtaining the best outcome. You can indicate in writing which tax debt you want to apply your offer payments to when the offer is submitted or when the payment is made. There are no strict requirements for Commitment Offers, although you cannot apply for them if you are in bankruptcy.
As of the date the offer is accepted, no additional interest will be added to your tax debt or to the amount of the accepted offer. The most important tips for a successful OIC are to pay the amount of the offer; file all tax returns on time; allow the IRS to keep all the tax refunds, payments, and credits to reduce your tax liability to reduce your tax liability; and continue to allow the IRS to keep all the tax refunds owed to it even after the OIC has been approved. A Form 656 with an application fee and an offer payment if you are committing your individual tax liability or if two taxpayers only owe joint obligations. If you send MORE than the required amount AND designate the payment as a deposit on Form 656, Commitment Offer, the payment that exceeds the required amount will be refundable.
If your company is not a sole proprietorship linked to your SSN, you will need a separate offer, with the application fee and payment of the offer. Unlike rejection, a returned commitment offer has virtually zero appeal rights (other than going to the bidding specialist). The IRS will not keep a record of a withdrawn transaction offer, but a rejected offer will be counted in your history, especially if the reason why it was rejected has not been corrected. A “compromise offer” is a little known but extraordinarily effective way for thousands of people with problems with the IRS to routinely eliminate tens of thousands of dollars in tax debts.
In conclusion, despite some of the advantages of resorting to appeals, it's always best to try to resolve an offer in a negotiated manner before reaching it.