Offer in Compromise is a tax settlement option which taxpayers can use to settle outstanding tax debt. Offer in Compromise may allow a New Hampshire taxpayer to make an offer to the IRS and if the IRS accepts the offer, the taxpayer’s outstanding tax debt will be settled. Many times the offer can be for much less than the full amount of IRS tax debt owed.
New Hampshire taxpayers will have to meet several requirements to qualify for an OIC and the IRS will only accept an Offer in Compromise if they are certain the taxpayer can not pay the full IRS debt with one lump sum payment or with an installment agreement. Most Offer in Compromise agreements are not accepted and the IRS will have sole authority to decide if they will accept all appeals or negotiate offers. If the OIC is denied, New Hampshire taxpayers will not have legal recourse against the IRS.
If an Offer in Compromise is accepted by the IRS penalties and interest will stop accruing, and the IRS will cease all collection efforts against the taxpayer. Offer in Compromise is one of several IRS tax settlement options and it can be time consuming and difficult to implement. Detailed information will be requested by the IRS and if the OIC is denied, the IRS can use this information to continue their collection actions. New Hampshire taxpayers who have outstanding tax debt or who have become the target of IRS collection effort should contact a tax professional for help.
Three types of Offer in Compromises:
New Hampshire taxpayers must meet one of the following conditions to qualify for Offer in Compromise:
1. Doubt as to Liability – The Internal Revenue Service will accept an Offer in Compromise if they believe there may have been an error in the calculation of the federal tax. Errors do not occur often, but they may occasionally happen as a result of an error in calculation, a misapplication of tax law or if the taxpayer provides additional tax information to the IRS.
2. Doubt as to Collectibility – The Internal Revenue Service may be willing to accept an OIC if they doubt they will be able to collect the IRS tax debt either now or before the statutory period ends. If the cost to collect is considered too high, the IRS also may grant an Offer in Compromise.
3. Effective Tax Administration- The Internal Revenue Service may accept an Offer in Compromise if they believe New Hampshire taxpayers will experience a hardship which is “inequitable or unfair” if they pay their tax debt. This condition is generally applied to the elderly and handicapped.
Rejection of Offer in Compromise in New Hampshire
The IRS accepts approximately 20% of the initial OIC offers. All OIC offers which are denied can be appealed by New Hampshire taxpayers by writing a letter within 30 days from the date of the Offer in Compromise denial letter. The IRS will have sole authority to accept all Offer in Compromise appeals.
OIC denial letters must outline the reasons for the Offer in Compromise denial and if the IRS believes the offer was too low, the letter should also document an amount which the IRS considers reasonable. If the IRS refuses to provide the taxpayer with Offer in Compromise information the New Hampshire taxpayer can request the information under the Freedom of Information Act.
Appealing an Offer in Compromise in New Hampshire
The first step in the Offer in Compromise appeal process is to contact the IRS administrator who made the first denial decision. Negotiations with the administrator are not always successful, but sometimes they may be willing to work with the taxpayer to find a settlement amount which is agreeable to the IRS and the taxpayer. If the IRS administrator is not willing to negotiate then a formal appeal can be made to the Internal Revenue Service by sending an appeal letter within thirty-days from the date of the OIC denial letter.
The following information should be included in the OIC appeal letter:
- The social security number, name, address and telephone number of the New Hampshire taxpayer.
- Documentation from the New Hampshire taxpayer outlining the reasons for the Offer in Compromise appeal.
- A list of the items which the New Hampshire taxpayer would like to negotiate.
- A list of the tax periods or years in question.
- Documented evidence which support the New Hampshire taxpayer’s position.
- The OIC appeal letter must be signed by the New Hampshire taxpayer under penalty of perjury.
Offer in Compromise appeals can be negotiated and completed by the New Hampshire taxpayer without legal counsel, but if taxpayers want legal help they will need to hire a tax attorney, certified public accountant or an enrolled tax agent.
Completing an Offer in Compromise
New Hampshire taxpayers must complete all of the following tasks for an Offer in Compromise:
- All Offer in Compromise forms must be sent by the New Hampshire taxpayer to the IRS.
- All financial information must be sent to the IRS by the New Hampshire taxpayer including: employment records and vehicle information.
- All federal tax returns must be completed and filed on or before the federal tax deadline for the next 5 years.
- New Hampshire self-employed workers must file quarterly tax statements and make estimated federal tax payments each quarter.
- All IRS taxes must be paid by New Hampshire taxpayers for the next 5 years.
- All Offer in Compromise payments must be made to the IRS by New Hampshire taxpayers according to the OIC agreement.
- All federal tax refunds will be applied to the New Hampshire taxpayer’s debt for the calendar year that the OIC is accepted.
The IRS has the legal authority to cancel all OIC agreements if the New Hampshire taxpayer does not complete all of the OIC requirements. If the Offer in Compromise is cancelled the full amount of the IRS tax debt can be charged back to the New Hampshire taxpayer.
Offer in Compromise Forms
- IRS Form 656- Offer in Compromise. New Hampshire taxpayers must complete Form 656 and send it to the Internal Revenue Service. This form will document the taxpayer’s ability to pay their IRS tax debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. New Hampshire taxpayers must send Form 443-A to the IRS to provide additional information to the IRS about their ability to repay their federal debt.
- IRS Form 443-B- Collection Information Statement for Businesses. This form will only need to be completed and sent to the IRS by New Hampshire taxpayers if their business debt is included in the Offer in Compromise.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. Form 656-A only needs to be completed by New Hampshire taxpayers if they are requesting an Offer in Compromise fee waiver.