One of the criteria for filing an offer in compromise to the Internal Revenue Service (IRS) is that you must not have filed for bankruptcy protection prior to asking for a compromise. Tax debts are exempt from bankruptcy discharge, but if you don’t have the money to pay the IRS, you still have other alternatives in lieu of filing bankruptcy.
Definition of Offer in Compromise (OIC)
The offer in compromise is a program provided by the IRS and is found under U.S. Code 26, section 7122. This law allows qualified individuals with an unpaid tax debt to negotiate a settlement amount that is less than the total owed. The object of the OIC program is to accept a compromise when it is in the best interests of both the taxpayer and government. This can be done as long as the tax payer voluntarily agrees to comply with all future payments and filing requirements of the tax code.
Eligibility Requirements for Individuals Requesting Offer in Compromise
Eligibility criteria for individuals requesting an Offer in Compromise are as follows:
- All required federal tax returns have been filed.
- You are current on your estimated tax payments or income tax withholding.
- You have a complete set of backup documentation.
- You do not have a pending bankruptcy case.
- Pay the $150 Offer in Compromise application fee.
- File IRS Forms 656 and 433A.
The Two Forms Required to be Filled Out for Offer in Compromise
- Form 656- IRS Form 656 is the actual application for the offer in compromise. This form deals with personal information, the tax years you have filed, the reason for the offer, current income status, payment terms you are offering, designation of any down payment you plan to make, the source of funds you will be making payments from, any other terms that might be a part of the agreement, and a place for your signature and date.
- Form 633-A- IRS Form 633-A is a form you must fill out that indicates your ability to pay. This form gives the IRS an idea of your current income and assets so they can fairly decide how much they are willing to compromise through how destitute your situation really is. This form includes personal identification, current employment whether employed or self-employed, a section for liabilities and lawsuits, a section to list all your assets, monthly income and expenses, business information, and other related interests.
Since income taxes are exempt from bankruptcy discharge except under certain circumstances, it is always a good idea to take care of your taxes first by being up front with the feds. Not filing taxes is something that can slow you down in filing for bankruptcy protection.
An offer in compromise is just one way of dealing with back taxes. You may also want to consult with a bankruptcy lawyer in order to understand the full implications of when you should file for bankruptcy protection.
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