Offer In Compromise

Offer In Compromise

Investopedia / NoNo Flores

What is an Offer In Compromise

Offer in compromise is a program instituted by the Internal Revenue Service (IRS) for taxpayers who cannot pay the taxes they owe, or for taxpayers for whom it would create a financial hardship to pay the taxes they owe. An offer in compromise allows taxpayers to settle their tax bill for less than the full amount owed. 

When considering whether to allow a taxpayer to settle his bill with an offer in compromise, the IRS will look at the taxpayer's unique circumstances, including their income, ability to pay, expenses, and any assets the taxpayers owes.

Understanding Offer In Compromise

Offers in compromise are only available to eligible taxpayers. Taxpayers can find out if they are eligible for this program by consulting the Offer in Compromise Pre-Qualifier questionnaire online. The questionnaire will ask whether you are in an open bankruptcy proceeding, have filled out all the tax returns required of you and whether you have filled out the required tax documents of someone who is self-employed or has employed others. You will then have to input your zip code, state, county, the total number of people in your household and your total tax debt.

The next step of the questionnaire concerns your assets. The Internal Revenue Service will require you to input your total bank balances, the value of any home equity you own, the value of any stocks, bonds or other financial assets you own, and other assets. Then it will ask you for your income from any jobs you have, or from interest or dividend income. After giving this information, you will be required to list your expenses, including rent, mortgage, and vehicle related expenses. If you don’t have vehicle-related expenses, you will be allowed to list expenses for public transportation. After filing this information, the IRS website will determine whether you qualify for an offer in compromise. If you or your business are involved in an open bankruptcy proceeding, you are not eligible to apply for an offer.

Alternatives to Offer in Compromise

If it turns out that you are not eligible for an offer in compromise, you may still be eligible to pay your taxes through an installment plan. Under such circumstances, the IRS will look at your income, assets, and expenses and determine a monthly payment that you can make until you are current on your tax liability. To apply for an installment plan, you can use the Online Payment Agreement tool. You can also use Form 9465, also known as the Installment Agreement Request.

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  1. Internal Revenue Service. "Offer in Compromise." Accessed Dec. 5, 2020.

  2. Internal Revenue Service. "Offer In Compromise Pre-Qualifier." Accessed Dec. 5, 2020.

  3. Internal Revenue Service. "Form 656 Booklet Offer in Compromise," Page 1. Accessed Dec. 5, 2020.

  4. Internal Revenue Service. "Apply Online for a Payment Plan." Accessed Dec. 5, 2020.

  5. Internal Revenue Service. "About Form 9465, Installment Agreement Request." Accessed Dec. 5, 2020.