Taxpayers could settle federal tax debt with an Offer in Compromise

  • Tax Updates
  • Comments Off on Taxpayers could settle federal tax debt with an Offer in Compromise

Issue Number: Tax Tip 2024-37

Taxpayers could settle federal tax debt with an Offer in Compromise

When a taxpayer can’t pay their full tax debt or if paying would cause financial hardship, they should consider applying for an Offer in Compromise. For assistance filing for an OIC from a legitimate representative, taxpayers are encouraged to check for a licensed enrolled agent or a reputable accountant in their area.

How an Offer in Compromise works
This is an agreement between a taxpayer and the IRS that settles a tax debt for less than the full amount owed.

The goal is a compromise that’s in the best interest of both the taxpayer and the agency. The Offer in Compromise application includes a fee of $205 and an initial payment. Low-income taxpayers don’t have to pay either the fee or the initial payment. Taxpayers should review the instructions for Form 656-B, Offer in Compromise, to see if they meet the qualifications to have these initial costs waved.

Who’s eligible
Taxpayers can check their eligibility and prepare a preliminary proposal with the Offer in Compromise Pre-Qualifier Tool.

Review the Offer in Compromise booklet
Eligible taxpayers should download and review the latest version of the OIC booklet., to avoid processing delays. This booklet covers everything a taxpayer needs to know about submitting an Offer in Compromise including:

Eligibility.
Costs to apply.
Application process.
Forms.
Application evaluation
When reviewing applications, the IRS considers the taxpayer’s unique set of facts and special circumstances affecting their ability to pay, including their:

Income.
Expenses.
Asset equity.
Beware of Offer in Compromise mills
Offer in Compromise mills aggressively promote Offers in Compromise in misleading ways to people who clearly don’t meet the qualifications, often costing taxpayers thousands of dollars.

An Offer in Compromise mill usually makes outlandish claims about how they can settle a person’s tax debt for cheap. The promoter fees are often excessive, and eligible taxpayers pay the OIC mill to get the same deal they could have received on their own by working directly with the IRS. This takes unnecessary money out of the taxpayer’s wallet.

In addition, not every taxpayer will qualify for an OIC. Some promoters knowingly advise indebted taxpayers to file an OIC application even though the promoters know the person will not qualify, costing honest taxpayers money and time.

More information:

Choosing a Tax Professional
Directory of Federal Tax Return Preparers with Credentials and Select Qualifications

Form 1040-X, Amended U.S. Individual Income Tax Return

  • Builder
  • Comments Off on Form 1040-X, Amended U.S. Individual Income Tax Return

Can I file my amended return electronically? (updated January 5, 2024)
Yes. If you need to amend your Form 1040, 1040-SR, 1040-NR, or 1040-SS/PR for the current or two prior tax periods, you can amend these forms electronically using available tax software products.

What are some reasons that an amended return cannot be filed electronically? (updated January 5, 2024)
Amended returns must be filed by paper for the following reasons:
Any amended Form 1040, 1040-SR, 1040-NR or 1040-SS/PR returns older than the current or prior two tax periods cannot be amended electronically. Amended returns for those earlier tax years must be filed by paper.
If amending a prior year return originally filed on paper during the current processing year, then the amended return must also be filed on paper.
How do I file my amended return electronically?
Contact your preferred tax software provider to verify their participation, answer any questions and for specific instructions needed to submit your amended return.

How many amended returns can be filed electronically? (updated January 2, 2024)
You can electronically file up to three amended returns per tax year. If you file a third amended return that is accepted, all subsequent attempts will be rejected.

Can I file my amended return electronically for previous tax years? (updated January 5, 2024)
You can amend your Form 1040, 1040-SR, 1040-NR, or 1040-SS/PR for the current or two prior tax periods electronically.

Will my amended return be processed faster if I file electronically? (updated January 2, 2024)
The current processing time is more than 20 weeks for both paper and electronically filed amended returns. See our processing status dashboard for timeframes.

Additionally, calling the IRS will not speed up return processing. Our phone and walk-in representatives can only research the status of your amended return 20 weeks or more after you’ve mailed it; or if Where’s My Amended Return? itself has recommended you contact us.

What forms are required with an electronically filed amended return?
An amended Form 1040, 1040-SR and 1040-NR return requires submission of all necessary forms and schedules as if it were the original submission, even if some forms have no adjustments. This is in addition to an attached Form 1040-X.

The amended Form 1040-SS/PR return requires submission of all necessary forms and schedules as if it were the original submission, even if some forms have no adjustments. Note that Form 1040-X will not be attached to Form 1040-SS/PR.

Is a new Form 8879 required when electronically filing Form 1040-X?
A new Form 8879 is required each time an amended Form 1040 or Form 1040-SR is electronically filed.

Is direct deposit available for electronically filed Form 1040-X? (updated January 2, 2024)
Beginning in processing year 2023, direct deposit can be requested for electronically filed amended returns for tax year 2021 and later. The bank account information should be entered on the electronically filed Form 1040-X (or Corrected Form 1040-SS/PR).

Can Form 8888, Allocation of Refund (Including Savings Bond Purchases), be filed with an amended return?
Yes. Form 8888 may be attached to an electronically filed amended return to request a direct deposit to multiple bank accounts. Refunds from amended returns cannot be used to buy savings bonds.

Where do I mail a paper check for an electronically filed amended return and should I use a Form 1040-V, Payment Voucher?
Use Form 1040-V, Payment Voucher, when mailing a paper check for payment made on an electronically filed amended return. Form 1040-V instructions provide the mailing address for sending paper checks.

How can I check the status of my electronically filed amended return? (updated January 2, 2024)
The Where’s My Amended Return? online tool or the toll-free telephone number 866-464-2050 can be used to check the status of your return and confirm receipt.

How soon can I use the Where’s My Amended Return? application to check the status of an electronically filed amended return?
The Where’s My Amended Return? (WMAR) online tool or the toll-free telephone number 866-464-2050 can be used for status updates three weeks after filing the return. Both tools are available in English and Spanish and have the most up-to-date information available.

Can I get the status of an amended return for multiple tax years? (updated January 2, 2024)
Where’s My Amended Return? or the toll-free telephone number 866-464-2050 can get you the status of your amended returns for the current tax year and up to three prior tax years.

What is happening when my amended return’s status shows as received?
Your amended return was received and is being processed. It currently takes more than 20 weeks to complete processing.

What is happening when my amended return’s status shows as adjusted?
An adjustment was made to your account. The adjustment will result in a refund, balance due or in no tax change.

What is happening when my amended return’s status shows as completed?
Your amended return has been processed. You will receive all the information connected to its processing by mail.

It’s been longer than 20 weeks since you received my amended return. Why hasn’t it been processed?
Some amended returns take longer than 20 weeks for several reasons. Your return may need further review if it:

Has errors
Is incomplete
Isn’t signed
Is returned to you requesting more information
Includes a Form 8379, Injured Spouse Allocation
Is affected by identity theft or fraud

Delays in processing may also occur when an amended return needs:

Routing to a specialized area
Clearance by the bankruptcy area within the IRS
Review and approval by a revenue officer
Review of an appeal or a requested reconsideration of an IRS decision

You will be contacted if more information is needed to process your amended return.

What types of amended returns aren’t available in the tool?

Where’s My Amended Return? cannot give you the status of the following returns or claims:

Carryback applications and claims
Injured spouse claims
A Form 1040, U.S. Individual Income Tax Return, marked as an amended or corrected return
An amended return with a foreign address
An amended business tax return
An amended return processed by a specialized unit—such as our Examination or Bankruptcy Department

Taxpayers could settle federal tax debt with an Offer in Compromise

  • Tax Updates
  • Comments Off on Taxpayers could settle federal tax debt with an Offer in Compromise

An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or doing so creates a financial hardship. We consider your unique set of facts and circumstances:

Ability to pay
Income
Expenses
Asset equity

We generally approve an offer in compromise when the amount you offer represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before you submit an offer in compromise. The Offer in Compromise program is not for everyone. Be sure to check the qualifications of any tax professional you hire to help you file an offer.

Who Is Eligible
Confirm you’re eligible and prepare a preliminary proposal with the Offer in Compromise Pre-Qualifier Tool.

You’re eligible to apply for an Offer in Compromise if you:

Filed all required tax returns and made all required estimated payments
Aren’t in an open bankruptcy proceeding
Have a valid extension for a current year return (if applying for the current year)
Are an employer and made tax deposits for the current and past 2 quarters before you apply

If You Apply and Are Not Eligible
If you apply for an Offer in Compromise and we can’t process your offer, we’ll:

Return your application and offer application fee
Apply any offer payment you included to your balance due

Submit Your Application
Find forms to submit an application and step-by-step instructions in Form 656-B, Offer in Compromise BookletPDF.

Complete an application package:

Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms
Form 656(s) – you must submit individual and business tax debt (Corporation/ LLC/ Partnership) on separate Forms 656
$205 application fee (non-refundable)
Initial payment (non-refundable) for each Form 656.

Select a Payment Option
Your initial payment varies based on your offer and the payment option you choose:

Lump Sum: Submit an initial payment of 20% of the total offer amount with your application. If we accept your offer, you’ll receive written confirmation. You must pay any remaining balance due on the offer in five or fewer payments.
Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If IRS accepts your offer, continue to pay monthly until it is paid in full.

If You Meet the Low Income Certification Guidelines
You don’t have to:

Send the application fee or the initial payment
Make monthly installments while we review your offer.

For details, see Form 656-B, Offer in Compromise BookletPDF.

Understand the Process
While IRS evaluates your offer:

Your non-refundable payments and fees are applied to the tax liability (you may designate payments to a specific tax year and tax debt)
IRS may file a Notice of Federal Tax Lien
IRS suspends other collection activities
Your legal assessment and collection period is extended
You make all required payments per your offer
You don’t have to make payments on an existing installment agreement
Your offer is automatically accepted if the IRS doesn’t make a determination within two years of the IRS receipt date (This does not include any Appeal period.)

If Your Offer Is Accepted

You must meet all the Offer Terms listed in Section 7 of Form 656, including filing all required tax returns and making all payments
IRS doesn’t release federal tax liens until your offer terms are satisfied
Certain offer information is available for public review by requesting a copy of a public inspection file.

If Your Offer Is Rejected

You may appeal a rejection within 30 days using Request for Appeal of Offer in Compromise, Form 13711PDF.
The IRS Independent Office of Appeals offers additional assistance on appealing your rejected offer.