High tax debt? IRS may offer compromise

A looming tax debt can be scary.


Taxpayers who have a tax debt that they cannot pay may have heard that they can settle their tax debt for less than the full amount owed. It’s called an Offer in Compromise. But before applying for an Offer in Compromise, there are some things the IRS wants you to know.

Usually, the IRS will only consider an offer in compromise if the debt is more than the taxpayer would be able to afford. Even if the amount is more than the taxpayer can afford at any one time, the IRS is more likely to accept a payment plan for the debt rather than a compromise on the amount of the debt. The IRS cannot accept a settlement offer if the taxpayer can afford to pay what they owe. Taxpayers should first explore other payment options including a payment plan.

A taxpayer must file all required tax returns first before the IRS can consider a settlement offer. When applying for a settlement offer, taxpayers may need to make an initial payment. The IRS will apply submitted payments directly to the debt to reduce the taxes owed.

The IRS has an Offer in Compromise Pre-Qualifier tool on IRS.gov. Taxpayers can find out if they meet the basic qualifying requirements. The tool also provides an estimate of an acceptable offer amount. The IRS makes a final decision on whether to accept the offer based on the submitted application.

Taxpayers wishing to file for an Offer in Compromise should visit IRS website’s Offer in Compromise page for more information. There taxpayers can find step-by-step instructions as well as the required forms.

Taxpayers can download forms anytime at www.irs.gov/forms or call 800-TAX-FORM (800-829-3676) and ask for Form 656-B, Offer in Compromise booklet.