The Internal Revenue Service (IRS) has created a variety of tax settlement options for the Colorado taxpayer. If you are considering a tax settlement option, it may be a good idea to discuss all of your options with a tax professional such as a tax attorney, tax accountant or enrolled agent.
Offer in Compromise may allow Colorado taxpayers to settle their IRS tax debt for a fraction of the total amount owed. All Offer in Compromise offers will not be accepted by the Internal Revenue Service. In fact, the IRS currently accepts approximately 20% of the Offer in Compromise offers before appeal. The IRS is not required by law to consider an Offer in Compromise offer and the Colorado taxpayer does not have legal recourse against the Internal Revenue Service if they receive a denial. Penalties and interest will continue to accrue until the Offer in Compromise is accepted or denied. Colorado taxpayers will want to consult with a tax professional prior to agreeing to an Offer in Compromise. If the OIC offer is not accepted, unfortunately, the Internal Revenue Service will have the financial information they need to continue their collection efforts.
Qualifying for Offer in Compromise in Colorado
The Internal Revenue Service will only consider an Offer in Compromise offer if the OIC meets certain criteria.
- Doubt as to Liability– In some cases a Colorado taxpayer will have some question about the liability of the tax debt owed. This condition is not frequently met, but if it is, the Internal Revenue Service may be willing to grant an Offer in Compromise.
- Doubt as to Collectibility– The amount of tax debt is not in question, but the Internal Revenue Service does not think they will be able to collect the full amount of federal tax debt owed.
- Effective Tax Administration– Under certain conditions the Internal Revenue Service realizes that collection of federal tax debt may cause “an economic hardship which is inequitable and unfair”, if this is the case, they may be willing to agree to an Offer in Compromise. The elderly and disabled most often qualify for an Offer in Compromise under this condition.
Rejection of Offer in Compromise in Colorado
Unfortunately, a large majority of Offer in Compromises will be not be accepted by the Internal Revenue Service and may have to be appealed. If your OIC offer is denied, the Internal Revenue Service is required to send the taxpayer written notification with an explanation for the denial and information about the amount of money the IRS would consider reasonable. Denials are frequently given because the Internal Revenue Service believes the taxpayer has made an offer which is too low. Any information concerning your Offer in Compromise is available under the Freedom of Information Act.
A tax professional can assist with all Offer in Compromise appeals and can help complete a new form 656 if necessary. In general, the new form will only be required if financial information substantially changes or if the taxpayer fails to make the appeal with in the thirty day deadline.
If the Offer in Compromise is rejected, the IRS has the authority to refuse all appeals. Colorado taxpayers do not have the legal right to sue the IRS, but the Internal Revenue Service is often willing to engage in negotiations to settle tax liability.
Appealing an Offer in Compromise in Colorado
If your Offer in Compromise has been denied, negotiations can frequently begin with the administrator who initially denied your Offer in Compromise application. If this negotiation fails, there is a more formal appeal process which can be used. To appeal an Offer in Compromise denial, a written appeal must be made with in thirty days of the Offer in Compromise denial letter.
Colorado taxpayers who have not consulted a tax professional in the initial stages of the Offer in Compromise process may want a tax professional’s help to complete the following tasks:
- Provide all the requested information in a timely manner
- Help file all federal tax returns, past and present which have not been filed
- File all tax estimates and tax payments quarterly for self-employed workers
- Paying all federal tax liability for the time periods not covered under the Offer in Compromise
Forms to file an Offer in Compromise
The following forms must be filed for the Offer in Compromise offer:
- IRS Form 656- Offer in Compromise. Form 656 provides information about the taxpayer’s financial status and the offer the taxpayer may be able to make to pay their outstanding IRS debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. This form will outline additional taxpayer financial information and the ability for the taxpayer to settle tax debt.
- IRS Form 443-B- Collection Information Statement for Businesses. This form is similar to the Internal Revenue Service Form 433-A but it contains business information. If you are including your business in the Offer in Compromise, Form 433B will need to be completed.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. This form will need to be completed if you are requesting the fee for the Offer in Compromise be waived.
Colorado Tax Professionals
If you live in Colorado and you are overwhelmed by federal tax debt, Offer in Compromise is one method to settle federal taxes. It can be difficult and confusing to deal with the Internal Revenue Service. Tax professional have the experience, knowledge and information Colorado taxpayer’s need to make an informed decision about tax settlement options.