filing an Offer in compromise

how to File an IRS Offer in Compromise (OIC)

1. Determine Eligibility

  • Financial Hardship: The IRS considers OICs for taxpayers who demonstrate an inability to pay their full tax liability due to financial hardship.

  • Types of OICs: The IRS offers three types of OICs:

    1. Doubt as to Liability: When there is a genuine dispute about the existence or amount of the tax debt.

    2. Doubt as to Collectibility: When you cannot pay the full amount due to financial hardship.

    3. Effective Tax Administration: When paying the full amount would create an economic hardship or be unfair or inequitable.

2. Gather Documentation

  • Financial Information: Collect documents that provide a complete picture of your financial situation, including:

    1. Income statements (pay stubs, tax returns, etc.)

    2. Bank statements

    3. Monthly expenses

    4. Asset statements (real estate, vehicles, investments)

3. Complete the Application

  • Forms: Use Form 656, “Offer in Compromise,” and Form 433-A (OIC) or 433-B (OIC), “Collection Information Statement,” to provide detailed financial information.

  • Offer Amount: Decide on an offer amount based on your ability to pay, which should be realistic and supported by your financial documentation.

4. Submit the Offer

  • Submission: Send the completed forms, supporting documents, and a non-refundable application fee (typically $205) to the IRS.

  • Payment Options: You can choose between a lump-sum payment or periodic payments over a period of time.

5. Await IRS Review

  • Review Process: The IRS will review your offer and financial information. They may request additional information or documentation.

  • Acceptance or Rejection: The IRS will either accept the offer, reject it, or propose a counteroffer. They may also ask you to pay a higher amount or provide additional documentation.

6. Follow Up

  • Compliance: Ensure that you comply with all terms of the OIC if accepted. This includes filing all future tax returns and making all required payments on time.

  • Appeals: If the offer is rejected, you can appeal the decision within 30 days of receiving the rejection notice.

the steps of Filing a New York State (NYS) Offer in Compromise

1. Determine Eligibility

  • Financial Hardship: NYS considers OICs for taxpayers facing financial difficulties who cannot pay their full tax liability.

  • Types of OICs: Similar to the IRS, NYS offers three types of OICs:

    1. Doubt as to Liability: Disputing the validity or amount of the tax debt.

    2. Doubt as to Collectability: When paying the full amount would create a severe financial hardship.

    3. Effective Tax Administration: When paying in full would result in an unfair or inequitable situation.

2. Gather Documentation

  • Financial Statements: Collect comprehensive financial information, including:

  • Proof of income (wages, investments, etc.)

  • Bank and investment statements

  • Details of monthly living expenses

  • Records of assets and liabilities

3. Complete the Application

  • Forms: Use Form DTF-4, “Offer in Compromise Application,” along with Form DTF-5, “Financial Disclosure Statement,” to provide your financial information.

  • Offer Amount: Determine an offer amount that you can afford and that reflects your financial situation.

4. Submit the Offer

  • Submission: Submit the completed forms, supporting documents, and a $50 non-refundable application fee to the New York State Department of Taxation and Finance (NYSDTF).

  • Payment Options: NYS may require an initial payment with the offer or allow payment plans.

5. Await NYS Review

  • Review Process: NYSDTF will review your offer and may request additional documentation or clarification.

  • Acceptance or Rejection: NYS will notify you of their decision. They may accept, reject, or make a counteroffer.

6. Follow Up

  • Compliance: If accepted, adhere to the terms of the OIC, including timely filing of future tax returns and making all required payments.

  • Appeals: You can appeal a rejection or counteroffer by submitting a written appeal to NYSDTF.

Tips for Both IRS and NYS Offers in Compromise

  1. Accuracy: Ensure that all information is accurate and complete. Inaccurate information can lead to rejection.

  2. Professional Help: Consider consulting a tax professional or attorney specializing in tax disputes to help you prepare and negotiate your offer.

  3. Record Keeping: Keep detailed records of all submissions and communications related to your offer.

By following these steps and working closely with a tax professional if needed, you can effectively navigate the process of submitting an Offer in Compromise to either the IRS or New York State and potentially resolve your tax debt for less than the amount owed.


How an Attorney Can Help with an Offer in Compromise

1. Case Assessment and Strategy Development

  • Initial Evaluation: An attorney will thoroughly review your financial situation, tax liabilities, and any notices or documents from the IRS or NYS. This assessment helps determine whether you qualify for an OIC and which type is most appropriate (doubt as to liability, doubt as to collectibility, or effective tax administration).

  • Strategic Planning: Based on their assessment, the attorney will develop a tailored strategy. This includes deciding on the offer amount, determining the most persuasive arguments for your case, and planning the submission process.

2. Documentation and Application Preparation

  • Form Completion: An attorney will accurately complete the necessary forms, such as IRS Form 656 and Form 433-A (OIC) or NYS Form DTF-4 and Form DTF-5. They ensure that all forms are filled out correctly and include all required details.

  • Financial Disclosure: They will help gather and organize comprehensive financial documentation, including income statements, bank records, and asset valuations, to support your OIC. Proper documentation is crucial to substantiate your claim of financial hardship.

3. Drafting and Submitting the Offer

  • Offer Amount Calculation: The attorney will help determine a reasonable and realistic offer amount based on your financial situation. They use their expertise to present a compelling case for why the offered amount reflects what you can reasonably pay.

  • Submission: The attorney will handle the submission of the OIC and related documents to the appropriate tax authority (IRS or NYS), ensuring that everything is submitted correctly and on time. They will also handle any application fees and keep track of deadlines.

4. Handling Communications with the Tax Authorities

  • Liaison Role: The attorney will act as your representative, communicating directly with the IRS or NYS on your behalf. This includes responding to any requests for additional information, handling negotiations, and addressing any issues that arise.

  • Follow-Up: They will monitor the status of your offer, ensuring that it is processed in a timely manner and addressing any follow-up questions or concerns from the tax authorities.

5. Negotiation and Resolution

  • Negotiation Skills: If the IRS or NYS counters your offer or requires modifications, the attorney can negotiate on your behalf. Their expertise in tax law and negotiation can help in reaching a more favorable settlement.

  • Counteroffers: If a counteroffer is proposed, the attorney will help evaluate it and decide on the best course of action, which may include making adjustments to your original offer or negotiating further.

6. Legal and Procedural Guidance

  • Legal Advice: The attorney will provide guidance on any legal issues or complexities that arise during the OIC process. They ensure that you comply with all legal requirements and understand the implications of your offer.

  • Appeals and Disputes: If your offer is rejected, the attorney can assist with filing an appeal or taking other legal actions to challenge the decision. They help you understand your options and the best way to proceed.

7. Post-Acceptance Compliance

  • Compliance Monitoring: If your offer is accepted, the attorney will ensure that you comply with all terms of the OIC, including filing future tax returns and making required payments. They help you avoid issues that could jeopardize the acceptance of your offer.

  • Future Tax Planning: The attorney can offer advice on tax planning and compliance to prevent future tax issues and ensure that you remain in good standing with the tax authorities.

Benefits of Hiring a Tax Attorney

  • Expertise: Tax attorneys have specialized knowledge of tax laws and OIC procedures, which can be crucial in navigating complex cases and ensuring compliance.

  • Advocacy: They advocate on your behalf, negotiating with tax authorities and managing communications to reduce your stress and improve your chances of a favorable outcome.

  • Accuracy and Efficiency: Attorneys ensure that all forms and documents are accurate and complete, which minimizes the risk of rejection due to errors or omissions.

  • Reduced Risk: Professional representation can help mitigate the risk of making costly mistakes or facing additional penalties.

By engaging a tax attorney, you benefit from their expertise in tax law, strategic planning, and negotiation skills. They guide you through the entire process of filing an Offer in Compromise, from assessing eligibility and preparing documentation to negotiating with tax authorities and ensuring compliance. This professional support can significantly increase the likelihood of a successful outcome and provide peace of mind throughout the process.