Wednesday, August 04, 2010

How to compromise with IRS on outstanding tax liabilities

The AICPA's Tax Advisor newsletter has a brief, but information article on settling with the IRS for an amount less than you owe.  Working with a CPA or tax attorney is advisable, of course.  From the article:

"A taxpayer makes an offer by filing Form 656, Offer in Compromise. Form 656-B, Collection Information Statement for Businesses, contains detailed instructions for completing the Form 656. In addition to the application, the taxpayer must send a $150 application fee with the offer. This fee can be abated if the monthly household income is not more than the IRS’s low-income guidelines. Moreover, other than for the low-income exceptions, if the taxpayer makes a lump-sum cash offer, 20% of the amount offered must be included with the offer. The payment is not refundable even if the IRS denies the offer. This payment rule has been in effect since 2006 and has resulted in a decline in the number of submitted offers. One of the current administration’s legislative proposals is to repeal this requirement."

How to use an offer in compromise
The current economic climate makes it harder for some taxpayers to pay their tax bills in full. When the Internal Revenue Service doubts it can collect on a tax debt, it is authorized to accept an offer of less than the full amount. This article explains how the offer-in-compromise system works.  Tax Adviser, The (7/2010)

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