At Solvable, our #1 goal is to help you get into a better financial position through honestly, partnerships, community and doing things the right way. Some of the links in this post may be from our partners. Opinions are the author’s alone.
The IRS settlement offer form is used to request an offer in compromise (OIC). With this program, the IRS agrees to settle your tax debt for less than the full amount owed. If you cannot afford to pay your past-due tax balance, requesting an offer in compromise can prevent further IRS collection actions.
The IRS designed this program to assist taxpayers for whom paying the tax balance would cause financial hardship. To request an OIC, you must submit an application that provides detailed information about your finances, including debts, assets, income, and expenses. The IRS will use this data to determine whether your offer will be accepted. If the amount offered does not represent the highest amount the IRS can reasonably collect based on your financial situation, it will not be accepted.
To determine whether you are eligible for an offer in compromise, you can use the IRS’s online prequalification tool. You’ll answer a few basic questions to see whether you meet the criteria.
Depending on your specific circumstances, you will need to complete one or more of the following forms.
Before filing these forms, make sure you have submitted all outstanding tax returns. If you haven’t, your OIC will be immediately rejected. What’s more, your down payment and processing fee will not be returned but applied to your tax debt.
Make sure you gather all required documentation before submitting your OIC forms. Some of the items you need include:
The IRS will evaluate your ability to repay your taxes based on its established collection standards. The IRS Collection Financial Standards document provides the monthly amounts that the IRS deems reasonable for common expenses such as transportation, utilities, housing, health care, clothing, and food. If your monthly spending in these areas is considered excessive, the IRS may renegotiate for a higher offer amount.
The IRS uses a basic formula to calculate the minimum acceptable offer. This number is called your reasonable collection potential (RCP). First, your allowable monthly expenses are subtracted from your monthly income. This number is multiplied by 12 if you can pay the whole amount in five months or by 24 if you need a longer installment plan. Next, the value of your assets is diminished by any mortgages or loans on these assets. This number is added to the first number to calculate your RCP.
Consider whether you can pay your offer all at once or if you plan to request a partial payment installment plan. This program allows you to settle your tax debt for less than the full amount by making payments over time.
The IRS approved 27,000 offer in compromise settlements in 2015, with an average amount of about $7,500 per taxpayer. Only about 40% of OIC offers were accepted by the IRS in 2015.
You have the right to appeal the IRS decision about your OIC. To do so, you must submit Form 13711, Request for Appeal of Offer in Compromise, within 30 days of receiving the offer rejection. During this time period, you may need to renegotiate your offer and/or provide additional requested documentation about your financial situation.
Your appeal request must include the following information:
If you do not plan to appeal, you can request an installment agreement to prevent future IRS collection attempts.
Hiring a tax professional to help prepare your offer in compromise increases the chances that your offer will be accepted. Find a trustworthy, qualified firm online with Solvable. We’ll ask a few questions about your tax debt and match you with vetted tax relief agencies. Help is on the way!