The Internal Revenue Service has created a variety of tax settlement options to help Tennessee taxpayers settle federal tax debt at a fraction of the full amount. Offer in Compromise is one of the most common of these programs. The goal of the Offer in Compromise (OIC) is to allow the Tennessee taxpayer to make an “offer” and if the Internal Revenue Service accepts the offer, than the tax liability will be settled if the OIC requirements are met. The IRS has developed the OIC program to help taxpayers settle tax debt and have the ability to meet all of their future tax obligations.
The Internal Revenue Service has been given the legal authority by the United States federal government to collect taxes. Tax payments are used by the federal government to fund their activities. The Internal Revenue Service also has sole authority to accept or decline Offer in Compromise offers. If the IRS does not accept the taxpayer’s offer, the taxpayer does not have any legal authority to sue the Internal Revenue Service.
Until the Internal Revenue Service accepts an OIC offer, penalties and interest will continue to accrue on the outstanding tax debt. In addition, if the offer is declined, the IRS will have detailed financial information from Tennessee taxpayers to continue aggressive collection actions. Currently approximately 25% of first time offers are declined. More may be accepted after all appeals and negotiations are completed. Offer in Compromise is not the best option for everyone. It can be expensive and time consuming. All Tennessee taxpayers who are considering Offer in Compromise may want to seek the advice of a tax professional.
Qualifying for Offer in Compromise in Tennessee
Not all Offer in Compromise offers will be accepted. Tennessee taxpayers who are considering an OIC must meet one of the following criteria:
- Doubt as to Liability- Tennessee taxpayers who have doubt as to the amount of tax liability they owe may be able qualify for Offer in Compromise. This condition is not frequently met.
- Doubt as to Collectibility– If the Internal Revenue Service determines a Tennessee taxpayer’s debt is either not collectable or too expensive to collect they may accept an Offer in Compromise. This condition differs from the first condition because the amount of debt is not in question, only the ability of the Internal Revenue Service to collect the debt.
- Effective Tax Administration- Tennessee taxpayers who are unable to pay federal tax debt because payment might cause “an economic hardship which is inequitable and unfair”, may be able to qualify for Offer in Compromise. This option is used most often for the handicapped and the disabled.
Rejection of Offer in Compromise in Tennessee
The Internal Revenue Service currently denies most Offer in Compromise offers. If an Offer in Compromise offer is denied, the Internal Revenue Service is required to send written notification to the Tennessee Taxpayer which outlines the reason the OIC offer has been denied and if the IRS considered the offer too low, what would be an acceptable offer. All Tennessee taxpayers have the right to view all Offer in Compromise information under the Freedom of Information Act.
Tennessee taxpayers who have been denied must file a formal written appeal to the Internal Revenue service with in 30 days from the date of the denial letter. Tax professionals can help with all stages of Offer in Compromise including the initial offer and the OIC appeals process. New Offer in Compromise forms do not need to be resubmitted unless a taxpayer’s financial situation has substantially changed or if the OIC deadline has expired.
Appealing an Offer in Compromise in Tennessee
Tennessee taxpayers who have been denied can contact the Internal Revenue administrator who first reviewed their Offer in Compromise offer to begin the negotiation process. The Internal Revenue Service will often work with the taxpayer to come to a mutually acceptable agreement. If the IRS administrator will not negotiate, a formal appeal can be made by sending a letter to the Internal Revenue Service with in the thirty-day deadline.
Tennessee taxpayers who hope to qualify for Offer in Compromise must meet the following requirements:
- Voluntarily submit all financial records and necessary documentation to the Internal Revenue Service
- Complete all the necessary Offer in Compromise forms to the Internal Revenue Service
- File all federal tax returns
- File and pay all estimated federal tax payments quarterly (for taxpayers who are self-employed)
- Pay all federal tax debt except for the amount outlined in the Offer in Compromise
Tennessee taxpayers must also submit the following Offer in Compromise forms:
- IRS Form 656- Offer in Compromise. IRS Form 656 provides detailed financial information about the financial status of the Tennessee taxpayer to the Internal Revenue Service and documents the ability of the Tennessee taxpayer to repay their federal tax debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. IRS Form 443-A provides additional financial information about the Tennessee taxpayer to the Internal Revenue Service.
- IRS Form 443-B- Collection Information Statement for Businesses. Form 433-B provides information to the Internal Revenue Service about a Tennessee taxpayer’s business. Tax Form 433-B is not required if the Tennessee taxpayer is not including their business debt in the Offer in Compromise offer.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. This form is only needed if the Tennessee taxpayer is requesting the Offer in Compromise fee be waived.
Tennessee Tax Professionals
Offer in Compromise is only one of several Internal Revenue Service tax settlement options available for Tennessee taxpayers. Offer in Compromise can be expensive and time consuming. Tax professionals can provide information about the right type of tax settlement plan for each taxpayer based on the taxpayer’s current financial situation.