A tax offer in compromise is merely an agreement between the IRS and a taxpayer whereby the taxpayer’s tax debt is settled for an amount that is less than the full balance that is owed. Generally, the IRS will not accept an offer in compromise if it feels that the tax liability can be paid off in full either in a lump sum payment or through an installment agreement.

Always make sure that a tax offer in compromise is submitted as a last resort. You must review other payment options to determine if there is a chance that you may be able to pay off the debt either by taking out a loan or from other resources you may have.

Taxpayers are required to file Form 656 or Form 656-L when they feel that the tax liability is inaccurate. In most instances, taxpayers must submit Form 433-A or Form 433-B to provide collection Information. Neither of these forms are required when a taxpayer submits an offer solely based on doubt as to the existence of the tax liability.

Once the applicable forms are filed, make sure to respond promptly to any additional requests the IRS may have. Often the IRS will just need clarification on your personal information or financial situation. A timely response will make it easier to get a tax offer in compromise accepted.

Don’t forget to pay your application fee or your offer could be rejected. For married couples who have the same joint tax liability, they can file just one Form 656 and list the joint liability. A fee of $150 must be attached to the form. When a married couple has a joint liability and one of the spouses has an individual tax liability, two offers and two application fees are required.

An important step in the process is making sure that you are current on all your tax filings. It will not look good to the IRS if you are not filing tax returns or making timely tax payments.

A tax offer in compromise is available to all taxpayers, although it may be difficult to qualify. The goal of the IRS is to accept the offer when it is in the best interest of both the taxpayer and the government. In addition, the IRS wants to promote voluntary compliance with all future filings and payment obligations.