How Do I Pay For An Offer in Compromise?
An offer in compromise is a lesser-known but often very effective way of managing your tax debt. The main advantage of an offer in compromise over other tax relief options is that it allows you to pay less than the full amount owed. However, not all offers in compromise will be accepted. It’s estimated that around twenty to forty percent of offers will be accepted in a year by the IRS. The main reason for this is that making an offer in compromise can be tricky. Your offer has to hit that sweet spot within your reasonable collection potential (RCP) as a taxpayer.
You’re probably wondering, though – what happens when the IRS accepts my offer? Is it payable immediately? Here are some answers to frequently asked questions about offers in compromise.
Upfront Payment
The important thing to remember is that the IRS requires taxpayers making an offer to pay a portion with their initial offer. The usual number is around twenty percent of the offer, but it can certainly go above that amount if you can afford it. Think of it as a show of good faith on your part when you make your offer; you’re reassuring the IRS that your offer is serious and that it’s not just empty promises.
Payment In Installments
After your offer is accepted, the portion you paid initially along with your offer will be deducted from the full amount of your offer. You now have to pay the figure stated in your offer and not the full amount of your tax debt—no need to panic if you don’t have the money to pay it immediately. For offers in compromise, the IRS allows the taxpayer to divide the payment into up to five installments. While the IRS can seem unforgiving, some provisions make it easier for taxpayers to deal with their tax debt. An offer in compromise is just one of them.
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