Apply with the new Form 656. A commitment offer allows you to settle your tax debt for less than the full amount you owe. It can be a legitimate option if you can't pay all of your tax liability or if doing so creates financial difficulties. A compromise offer is an agreement between a taxpayer and the IRS that settles a tax debt for less than the full amount due. A compromise offer is an option when a taxpayer cannot pay all of their tax liability.
It's also an option when paying the full tax bill could cause financial difficulties for the taxpayer. The goal is to reach a compromise that fits the interests of both the taxpayer and the agency. The IRS will calculate the correct amount of the offer. If it's more than you offered and you don't have special circumstances, the IRS will give you an opportunity to increase the amount of your offer.
If you don't, the offer will be declined. If the IRS determines that you can pay all of the debt, you can request an installment agreement. If you owe a significant amount of back taxes and can't pay the full amount, submitting a compromise offer to the Internal Revenue Service (IRS) could be your best path forward. With a compromise offer, you can pay off your tax debt with less than you currently owe (sometimes much less as well).
Negotiating the tax debt with the IRS generally means submitting the correct application forms and all the attached documentation. You can also apply for currently uncollectible status, which suspends your tax debts due to your financial difficulties. Of course, it's important to enlist the help of a tax professional if you think your debt is about to expire, as the steps you take today could affect what happens next. Estimated tax payments must be equal to 100 percent of your total taxes from the previous tax year or 90 percent of the income tax you expect to owe for the current year.
If you agree to the rejection, you can submit the full payment of your tax debt to avoid additional interest and penalties, or request an installment agreement to pay your tax debt. When evaluating an offer, the IRS will look at several factors, including your future income, your debts, your assets, and your overall ability to pay the tax debt. To determine if using a tax professional is the right thing to do, you'll need to consider the size of your tax debt and the costs of the service. A payment plan is actually the most common solution for determining how to negotiate tax debt with IRS agents.
Anyone can request a compromise offer, but getting help from a tax relief company can make the process easier, especially if you owe a large amount of money. You also risk providing the IRS with details that contradict your statement that you can't pay your tax debt in full. As of the date the offer is accepted, no additional interest will be added to your tax debt or to the amount of the accepted offer. The refund that is withheld as part of the offer agreement applies to the total tax debt and is not considered a payment of the amount of the accepted offer.
Individual taxpayers and business owners can use the undertaking offer brochure (PDF) recently updated by the IRS to learn how a compromise offer works and decide if it could help them resolve their tax debt. The one thing they all have in common is that they can't be eligible to negotiate tax debt unless they're up to date with all of their tax returns.