What You Should Know About Submitting an Offer in Compromise...

It's after April 15th and most tax returns have been filed, hopefully you don't have any unfiled returns. But, some people may be left wondering how they are going to pay the amount they owe. While there are a several options available to individuals, the Offer in Compromise, or settlement, gets the majority of press time, especially in the infamous "pennies on the dollar" commercials. These commercials never say just unusual it is for the IRS to actually approve an Offer in Compromises (OIC) for individuals. Before you go to the trouble and expense of hiring someone to file an Offer in Compromise for you, keep the following facts in mind. There are three types of OICs:

• Doubt as to Collectability
• Doubt as to Liability
• Effective Tax Administration

Make sure that if you do decide to file an OIC, you file the correct one. For example, filing a Doubt as to Collectability OIC when you think you should not have a tax balance due would be a mistake. 'The IRS has to accept my offer' mythr While this is actually based on fact, the majority of individuals do not know the entire story. Just because you file an OIC does not mean that the IRS will accept it. In fact, in 2009 only 0.113% of individuals with a tax balance had an OIC accepted. That gives you about a 1 in 1,000 chance of having your OIC accepted. If there is a way for the IRS to receive payment of your tax liability, through a lump sum full payment or an installment agreement, your OIC will not be accepted. The factual part of this myth stems from IRC 7122(f) which states that the IRS does have to accept an Offer in Compromise, if it is not withdrawn, returned, or rejected within twenty-four months of the IRS receipt date. This rarely happens, however, and should not be your basis for filing an OIC. The down payment and application fee are non-refundabler When you send in your down payment and application fee, you won't be getting that money back. Whether or not the IRS accepts your Offer in Compromise does not matter - the down payment is kept and applied in the government's best interest (which is usually your oldest tax liability). The application fee won't even be applied to your liability - it is just a processing fee. You will extend how long the IRS can collect When you file an OIC, you automatically extend the ten-year limit that the IRS has to collect on your unpaid tax. The IRS adds the number of days your OIC is in review, plus an additional thirty days, to your Collection Statute Expiration Date. So if your OIC is not accepted, you are right back where you started and the IRS has more time to try and collect the tax. Consideration of offersr The IRS won't even consider your Offer in Compromise if it doesn't meet the minimum requirements:

• Down payment must be submitted with the OIC (unless you qualify for an exemption of the payment)
• Application fee of $150 must be submitted with the OIC
• You have submitted an OIC that is equal to at least your Reasonable Collection Potential
• You cannot submit an OIC while you are in bankruptcy
• All of your past returns must have been filed - you must not have any Unfiled Tax Returns
• You must be current on your withholding or estimated tax payments for the current yearv
• You must submit Form 656 and Form 433A

You don't have to send the entire amount to the IRS at oncer If you are lucky enough to have your OIC accepted, you are not required to mail in the total amount that the IRS agreed to. You certainly can if you have the means to do so, but the IRS does allow the payments to be made over a number of months, depending on the payment arrangement that you request. Frivolous Offer Penaltyr If you file an OIC knowing that it will not be accepted and do so only to delay the IRS' collection efforts, you may receive a $5,000 penalty. Make sure that you meet all of the requirements for submitting an OIC and have good reason to believe that the IRS will accept your OIC.