You’ve completed your individual tax return, and you realize your tax liability is more than you can afford to pay, and you wonder if you qualify for an IRS Offer in Compromise. What are your options? Good news: You may qualify for an IRS Offer in Compromise (OIC), an agreement you make with the IRS to pay less than you owe. Requirements include being current on filing your tax returns and making estimated payments, and you must not be involved in an open bankruptcy proceeding. The IRS will review your OIC, and, in a process that can take six to twelve months, they may accept it if they determine that they are unlikely to be able to collect the full amount you owe.

Before working on the required forms, the IRS Offer in Compromise pre-qualifier tool can help you determine if it is worthwhile to proceed. Your next step is to complete Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, and Form 656, Offer in Compromise, both contained in the Form 656 Booklet: Offer in Compromise.

Tips for Completing Offer in Compromise Forms

Ensure that you have the correct Offer in Compromise forms for your circumstances. Form 656 is for taxpayers who cannot afford the tax liability, while Form 656-L is for taxpayers disputing the amount owed. For financial information, individuals should use Form 433-A (OIC), while businesses should use Form 433-B (OIC).

Gather financial records and supporting documentation. You will need records about your assets, income, and expenses, including values of tangible assets such as your home and vehicles, as well as amounts you owe. Pay stubs or W2 statements, bank statements, and receipts for expenses will support the financial information you provide.

Avoid common mistakes. “Complete” and “accurate” are your watchwords. Failing to fill in all required fields, erring when stating the amount you owe or the tax year, failing to list all amounts for assets, income, and expenses, or estimating any of them, and omitting support documentation can cause the IRS to reject or delay your application, and you may even incur penalties.

Include all required payments. In addition to the $205 application fee, you must also include your initial payment, which will depend on the payment option you choose (lump sum or periodic) and the total amount you propose paying.

Tackling IRS forms can be daunting, especially when negotiating a lower payment. It’s possible to navigate Offer in Compromise forms yourself, but we don’t recommend doing so. The experts at Highland Tax Resolution can advise you on the best options and strategies in your case.