Offer in compromise: who really qualifies

Check two things before anything else: are all your returns filed, and are your current-year payments up to date? The IRS offer in compromise page lists both as conditions. An offer from someone with unfiled returns is not processed. Then list your monthly income, expenses, bank balances, and the equity in your home, car and retirement accounts. Send that list to Blaga before you pay any company a fee to file an offer.

People whose full balance is out of reach. The IRS says: "Generally, we won't accept an offer if you can pay your tax debt in full through a payment plan and/or equity in assets." To apply, you must have filed all required returns, made required estimated payments, not be in an open bankruptcy, and, for employers, be current on deposits for this quarter and the last two. The IRS has a Pre-Qualifier Tool on the same page.

Be careful of anyone who promises an offer before seeing your numbers. Many people who owe are better served by an installment agreement.

It starts from what it believes it could collect: the equity in your assets plus a share of your future monthly income left after allowed expenses. That is why the financial statement in Form 656-B, the Offer in Compromise Booklet, matters so much. Blaga builds that statement with you line by line before anything is filed. Small details move the result. An old car with a loan against it, a retirement account, or a paycheck that changes month to month all need to be shown accurately. If the statement leaves something out, the IRS may find it in its own records, and the review slows down.

The IRS charges a $205 application fee plus a first payment, unless you meet the low-income rules. With a lump-sum offer, you pay 20% of the offer with the application and the rest in five or fewer payments if accepted. With a periodic offer, you keep paying while it is considered. Low-income individuals pay no fee and no payments during review. A rejected offer's fee is not returned.

Most collection is suspended, the 10-year collection period is extended, and a lien may be filed. If the IRS doesn't accept or reject the offer within two years, it is automatically approved. Liens stay until the accepted offer is paid in full, as our lien release page explains. If the offer is rejected, you can appeal. After acceptance, the terms in Section 7 of Form 656 apply, so plan to file and pay on time from then on.

She gives you a straight answer on whether an offer fits, prepares Form 656 and the financial statement, and answers the IRS offer examiner under Form 2848. If the numbers point elsewhere, she says so, and moves you toward a payment plan or a hardship pause.

Only when the numbers say so. An offer costs a $205 fee, ties up your finances in a long review, and requires you to stay compliant afterward. A payment plan is cheaper to set up and starts protecting you sooner. Where the balance could be paid within the collection period, the IRS generally expects a plan. Where it can't, an offer is worth a serious look. Our back taxes page compares all the routes side by side.