New Fees Make it More Difficult to Make an Offer the IRS Can Refuse- IRS Offer in Compromise

If you owe the IRS a lot of money in tax debt, the Internal Revenue Service has some clearly defined options. However, one such option, called an IRS Offer in Compromise, is getting increasingly hard to apply for and to be approved for.

In 2003, the IRS instituted a $150 fee just to apply for an IRS offer in compromise. If your claim for was ultimately rejected, your $150 would not be returned to you. (The fee however, would be applied to your balance if your application was accepted.)

There are two ways to waive the application fee. If, when you apply for the IRS offer in compromise, you are claiming a "doubt as to liability," the fee is not applicable. Otherwise, you may petition to have the fee waived if your household income falls at or below the poverty level. (In other words, in 2006, a single person would have to make $10,160 a year or less, while a family of five with three children under 18 would have to make $23,307 or less in order to have the $150 fee waived.)

As of July 2006, the IRS added more requirements. If you are proposing to settle your claim in five or fewer payments, you will have to submit 20 percent of your debt along with the application fee. If you are proposing to pay off your debt in six or more payments, you will have to mail in your first proposed payment with the application, and continue making regular payments as the IRS considers your offer. (People who fall under the poverty level are also exempt from these stipulations.)

While the IRS will either return your application or nullify it if you don't remain current on your payments, there is no guarantee they will accept your IRS offer in compromise. In fact, the IRS denies far more Offer in Compromise requests than it grants. To illustrate, in fiscal year 2003, the IRS received 127,769 requests for offers in comprise, but accepted just 21,570 offers.

Moreover, the IRS Offer in Compromise may be very time consuming to fill out. The entire application package, complete with instructions as well some forms which may not be applicable to your situation, is more than 60 pages long.

Considering all of these factors, you may want to carefully consider your alternatives before deciding if an IRS offer in compromise is the best way to settle your tax debt. A tax relief specialist should be able to help you in determining if an IRS offer in compromise is best for you, or can suggest other alternatives. If submitting an offer is the recommended course of action, a tax relief specialist can assist you in completing the form and ensuring you meet all of the relevant requirements.

By David Plowman

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