What You Need to Know About an Offer in Compromise
By Amanda L. Richter, CPA
If you are like most taxpayers, you do not enjoy opening mail from the IRS, especially if the IRS is after you to collect a tax liability. Fortunately, there may be solution for you to settle your tax debt for less than the full amount owed; this is called an offer-in-compromise.
To start the settlement process, the taxpayer makes an offer to the IRS in writing using IRS Form 656. An offer is an official agreement between you and the IRS to settle the debt for less than you owe. To be considered, the offer must be based on what the IRS considers your true ability to pay. It is important to remember that submitting an application does not guarantee the offer will be accepted. The offer essentially begins the process of evaluating and reviewing your circumstances to determine your ability to pay. During this process, the IRS will review your application and determine if 1) you are unable to pay the full amount, 2) whether there is doubt as to how much the tax liability is, 3) collection of the tax liability would create economic hardship for you (for example, due to your loss of employment, health issues, etc.), or 4) compelling public policy and equity considerations.
Generally, the IRS will not accept an offer, if they believe you are able to pay the debt in full or through an installment agreement. However, if after reviewing your offer and determining that you are unable to pay the entire debt, the IRS will accept partial payments to no payment at all.
Before submitting an offer, you must first determine your eligibility which includes: 1) filing all individual tax returns, 2) up-to-date on all required estimated tax payments for the current year, and 4) if you own a business, make all required federal tax deposits for the current quarter. A streamlined offer-in-compromise program is available for taxpayers with annual incomes up to $100,000. In addition, the taxpayer must have tax liability of less than $50,000. Taxpayers should be aware that there is a $5,000 penalty applies to any person who submits a frivolous or fraudulent application for an offer in compromise. However, the penalty is clearly aimed at those who abuse the process and should not deter taxpayers with legitimate offers from using the compromise process.
Please call if you would like to discuss whether submitting an offer-in compromise would be beneficial to you.
Ask Kit Kat: Seals & Antarctic Mystery
Hook Law Center: Kit Kat, how did seals help solve an Antarctic mystery?
Kit Kat: Well, the seals had a little help from scientists, but they worked together to shed light on a mystery which was puzzling to scientists. In 2016 and in 2017, scientists noticed that there was a large hole of open water in the middle of the Weddell Sea which is part of the southern Ocean and is located east of the Antarctic Peninsula. Normally, the Weddell Sea is frozen much of the year, so it was extremely rare that open water about twice the size of the state of Vermont would occur. This phenomenon is known as a polynya. According to Ethan Campbell, one of the scientists on the project, “We thought this large hole in the sea ice—known as a polynya—was something rare, maybe a process that had gone extinct. But the events of 2016 and 2017 forced us to reevaluate that.”
Now here’s where the elephant seals enter the picture. The scientists outfitted some of these local seals with antennae to their heads. The seals didn’t seem bothered by the attachments, and they went about their normal business of cavorting and diving as usual. The antennae then transmitted information to the scientists. With this data, the scientists were able to reach some conclusions. Apparently, polynya are formed when certain unusual conditions occur simultaneously. When strong storms occur near an underwater mountain (the case here), it causes the sea water to churn and swirl. This brings water from the deeper parts of the ocean to the surface. Water from ocean depths tends to be saltier. The saltier water leads to melting ice, which doesn’t refreeze after the storms subside, even though some of it sinks back to deeper depths eventually. Apparently, this is what occurred in 2016 and 2017.
We will have to wait and see if the phenomenon of polynya occurs in the future. However, we can thank the elephant seals in Antarctica for their help in understanding the phenomenon.