Do I Have to Pay Money when I Submit my Offer in Compromise to the IRS
In the good ole days you could submit your offer in compromise to the IRS and it wouldn’t cost you anything except a filing fee. So, it didn’t matter how much you were offering to settle your tax debt with the IRS you knew that you were going to have several months before the IRS accepted your offer in compromise and then you would have several months after your offer in compromise was accepted to pay it in full. Things changed in 2006.
In 2006, the code was changed and a prepayment requirement was added. Now, when you submit your offer in compromise to the IRS you must pay a $150.00 application fee along with some payment towards your offer in compromise. The payment you have to make depends on the amount and type of offer in compromise you are making.
If you are making a lump sum offer in compromise payable within five months from acceptance of your offer, you must submit a 20% down payment with your offer in compromise.
If you are offering to make installment payments for 24 months, you must make the first month’s payment with your offer in compromise and continue making those payments throughout the entire time your offer in compromise is being considered.
These payments are non-refundable, so if your offer in compromise is rejected by the IRS then they will keep this money and apply it to your income tax debt. You can request what years you want your payments to be applied to when you submit them. If you do not request the payment to be applied in a specific way, the IRS will apply it in the way most beneficial to the IRS.
While 20% or the monthly payments may not sound like much, in my time representing clients with tax problems before the IRS I have noticed that many times the 20% requirement is the difference in whether the taxpayer will be able to afford to submit their offer in compromise or not – even if the overall offer in compromise would save them thousands and thousands of dollars.
The only exception to this is if your income meets the poverty guidelines as set out by the IRS in the Form 656 – Offer in Compromise publication. If you satisfy these requirements, you will be required to submit an affidavit stating your income and how it qualifies for not having to pay an application fee or down payment and then the IRS will consider your offer in compromise without the money.
If you do not qualify for that exception and you do not send the correct amount of money with your offer in compromise, you can rest assured that your offer in compromise will be returned to you without any consideration by the IRS.