How to Qualify
for an Offer in Compromise
When you find yourself unable to pay your IRS bill, it can feel like you have no way out. The IRS won’t let you ignore them, so they make it difficult for you to get back on track by requiring payment in full or a lot of documentation and paperwork. Many people give up at this point, scared that the IRS will take their home or other assets as payment. If you qualify, an offer in compromise is a great way to settle your tax debt while keeping your assets intact and not having to file bankruptcy. When you meet the requirements outlined by the IRS, they have to accept your offer in compromise. Read on to learn more about how to qualify for an offer in compromise and what benefits it offers compared to other methods of resolving tax debt.
What is an Offer in Compromise?
An offer in compromise is an alternative way to pay off your tax debt. The IRS accepts an offer in compromise in certain circumstances if it benefits the government, although you have to meet certain qualifications to be eligible. With an offer in compromise, you’ll pay a lump sum as a down payment on your tax bill. The amount you’ll owe depends on your situation — your tax bill, your income, your assets, and your expenses. The IRS will use this information to decide how much you can afford to pay. While an offer in compromise isn’t the same for everyone, there are some general requirements you must meet.
Is an Offer in Compromise Right for You?
An offer in compromise is only right for you if you’re in a serious financial predicament. In other words, it’s only an option if you simply don’t have the money to pay your tax bill. If you’re simply behind on your taxes, the IRS will likely impose a lien on your assets, garnish your wages, and force you to pay interest on your debt. If you’re in this situation, an offer in compromise can help you get back on track without having to pay interest on your bill. However, you must meet certain qualifications to be eligible.
Requirements for an IRS Offer in Compromise
Before you fill out the offer in compromise application, you should have a good idea of what you’ll owe. You can use the payment calculator to get an estimate, but you may owe more or less depending on your specific circumstances. The IRS taxes your income and assets, and you can use the following guidelines to see if you qualify for an offer in compromise.
Your Tax Bill
You must owe at least $50,000 in taxes. The amount you owe depends on your income, age, and family status.
Your Income
Your income must be less than a certain amount. The IRS assesses how much you can afford to pay based on your income, deductions, and living expenses.
Your Assets
The IRS also wants to make sure you don’t have the ability to pay off the bill in a lump sum. If you can afford to pay off the full amount, they don’t want to accept an offer in compromise. You’ll need to show that you don’t have the ability to pay the full amount in one payment.
Personal and/or Financial Situation
The IRS accepts an offer in compromise if you’re unable to pay your tax bill because of a "certain situation." There are a few different situations that qualify, such as:
- Health Issues
If you’re in poor health but can’t get disability or SSI, an offer in compromise can help you pay your taxes. - Death or Disability of a Taxpayer
If a taxpayer dies or becomes disabled, an offer in compromise can help their estate pay off the taxes. - Certain Types of Employment
You can qualify for an offer in compromise if you’re self-employed, work for tips, or work in seasonal work. - Certain Types of Hardship
The IRS also accepts an offer in compromise if you face a serious hardship. You can qualify for an offer in compromise if you’re experiencing any of the following:
- Medical bills that you can’t pay
- Death or disability of a family member
- Disasters such as fire, flood, or hurricane
- Economic problems such as low employment, high medical bills, or high cost of living
- Legal problems such as divorce, child custody, or criminal investigations
- Education problems such as tuition, books, and supplies
- Debt problems such as repossession, foreclosure, or high interest debt
- Maintenance problems such as child support, alimony, or unpaid child support
- Extraordinary circumstances such as an unusual or unexpected circumstance
- Financial hardship or inability to pay
The IRS considers any of these situations to be a serious hardship that justifies accepting an offer in compromise.
Pros and Cons of an Offer in Compromise
An offer in compromise is advantageous because you don’t have to pay interest on your bill. If you have a high tax bill and can’t afford to pay the full amount, interest can add up quickly. You’ll pay a $25 processing fee when you apply for an offer in compromise, but you don’t have to pay interest or risk a tax lien. Your assets are safe from seizure, and a tax lien doesn’t affect your credit score.
The biggest disadvantage to an offer in compromise is that it may take a long time to process. You may have to wait as long as 18 months for the IRS to approve your offer in compromise. During this time, you must maintain a payment plan and make timely payments. You may also have to pay interest on your IRS bill. You can only qualify for an offer in compromise once every 10 years.
How to Qualify for an Offer in Compromise
Before you fill out the application, make sure you meet the requirements. You must owe the IRS at least $50,000. You also need to own assets that the IRS can’t take as payment in full, such as your house. The IRS will seize your assets and sell them to pay off the debt once your offer in compromise is approved, so you’ll have to be careful to qualify. The IRS will evaluate your tax bill based on your deductions, income, and living expenses. You’ll have to commit to a payment plan and make timely payments while your application is processing. If your offer in compromise is approved, you won’t have to pay interest on your bill.
Speak to a Tax Relief Specialist
Our specialists take the time to listen and understand your current situation and goals (including any immediate tax relief you may need to stop or prevent a wage garnishment, lien, or bank levy).
