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March 30, 2021

TAS Tax Tips: Is an Offer in Compromise Right for You?

Is an Offer in Compromise Right for You?

What is an Offer in Compromise?

An offer in compromise (offer) allows you to settle your tax debt for less than the full amount you owe. There are three types of offers. We will focus on Doubt as to Liability Offers first.

Doubt as to Liability (DATL) offer – You have a legitimate doubt you owe all or part of the tax debt.

  • DATL offers are submitted using Form 656-L, Offer in Compromise (Doubt as to Liability).
  • No deposit or application fee is required for this type offer. However, you do need to offer at least $1, based on what you believe the correct amount of tax should be. If you believe you don’t owe any tax, refer to the instructions in Form 656-L for other alternatives to a DATL offer.

What to send with a DATL offer

  • Pages 5-8 of Form 656-L.
  • A written statement explaining why the tax debt (or part of the debt) is incorrect.
  • Supporting documentation that will help the IRS identify the reason(s) you doubt the accuracy.
  • If supporting documentation is not available and you cannot reconstruct your books and records, you should provide a detailed explanation as to why the tax debt or portion of the tax debt is incorrect.

Where to send your DATL offer

Mail your offer package to:
Brookhaven Internal Revenue Service, COIC Unit
P.O. Box 9008, Stop 681-D
Holtsville, NY 11742-9008

Due to the ongoing impact of COVID-19 on IRS operations, please visit IRS Operations During COVID-19: Mission-critical functions continue for any updates before mailing your offer package.

Next, let’s discuss the other two types of offers.

Doubt as to Collectibility (DATC) offer – You agree that you owe the debt, but you can’t afford to pay it in full and pay your basic living expenses at the same time.

Effective tax administration (ETA) offer – You have enough income and assets to pay the full amount and there is no doubt that the tax is legally owed but doing so would create a hardship for you. ETA offers may also be considered if it would be unfair and inequitable to require you to pay the full amount because of exceptional circumstances. ETA offers are only available if you don’t qualify for the first two types of offers.

What you need to know before filing a DATC or ETA offer

For DATC and ETA offers, the IRS will first determine if your debt can be paid in full through a monthly installment agreement. You should consider if an installment agreement is an option. Since the amount of your offer will be based on your “reasonable collection potential,” TAS encourages you to use the Offer In Compromise Pre-Qualifier tool to see if you qualify for an offer. Use of this tool is not a guarantee of offer acceptance.

What to send with a DATC or ETA offer

  • Completed Form 656, Offer in Compromise. This form is part of the Form 656-Booklet, Offer in Compromise.
  • Financial forms to let the IRS know about your monthly income, expenses, assets, and liabilities. These forms are also part of the Form 656-Booklet.
    • Individuals submitting either a DATC or ETA offer should complete Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals. Be sure to consider national and local standards when you list your expenses.
    • Businesses submitting either a DATC or ETA offer should complete Form 433-B (OIC), Collection Information Statement for Businesses.
  • Copies of all verification documents listed in the checklist on Form 433-A (OIC) for individuals, or Form 433-B (OIC) for businesses.
  • Your offer payment and application fee. See the next section for more details.

How much to pay with your DATC or ETA offer

  • You must submit an initial payment with your offer in compromise unless you are an individual who qualifies for a low-income waiver.
    • If you want to pay your offer in a lump sum, you need to pay 20 percent of the amount you offer with your offer package.
    • If you want to pay your offer in periodic payments (over no more than a two-year period), you need to include your first payment with your offer package.
  • OIC application fee, currently $205, unless you qualify for the low-income waiver. If you qualify for this waiver, be sure to check the low-income certification box in Section 1 of Form 656.

Where to send your DATC or ETA offer

Mail your offer package based on where you live.
If you reside in: Mail your offer package to:
AZ, CA, CO, HI, ID, KY, MS, NM, NV, OK, OR, TN, TX, UT, WA Memphis IRS Center COIC Unit
P.O. Box 30803, AMC
Memphis, TN 38130-0803
AK, AL, AR, CT, DC, DE, FL, GA, IA, IL, IN, KS, LA, MA, MD, ME, MI, MN, MO, MT, NC, ND, NE, NH, NJ, NY, OH, PA, PR, RI, SC, SD, VA, VT, WI, WV, WY, or have a foreign address Brookhaven IRS Center COIC Unit P.O. Box 9007 Holtsville, NY 11742-9007

Due to the ongoing impact of COVID-19 on IRS operations, please visit IRS Operations During COVID-19: Mission-critical functions continue for any updates before mailing your offer package.

When is the IRS unable to consider your DATC or ETC offer?

Your offer cannot be considered if:

  • You are in bankruptcy.
  • You did not include an application fee or check the low-income certification box on Form 656.
  • You did not include the required initial payment with the offer (20 percent of the offered amount for lump sum offers or the first payment for periodic offers) or check the low-income certification box in the applicable section of Form 656.
  • Your case is with the Department of Justice.
  • There are no debts on your account, i.e., your tax refund paid your debt in full and there are no other outstanding debts.
  • The collection statute expiration date (CSED) has expired for all tax liabilities included in your offer.
  • You have not filed all your tax returns and received a bill from the IRS for at least one tax liability.
  • You have not made all required estimated tax payments for the current year.
  • You are a business owner with employees, and have not made all required federal tax deposits for the current quarter.
  • Your debt is the result of a restitution amount ordered by a court or a tax debt that has been reduced to judgment.

More information

  • If the IRS is unable to consider your offer, it will return your application fee but not your partial payment.
  • Even if your offer can be considered, it may be returned for several reasons, for example if you don’t provide the necessary paperwork or you fail to stay in filing and payment compliance while the IRS considers your offer.
  • The employee assigned to your case may request additional documentation from you. It’s important to respond quickly and ask for more time if you need it.
  • If your offer is returned, you may have the right to contest that decision.
  • While your offer is being considered you can generally expect no new levies to be filed, but the IRS may file a Notice of Federal Tax Lien.
  • If your offer is accepted, the IRS will hold your refunds through the calendar year in which your offer is accepted.
  • If your offer is rejected, you can appeal that decision with Form 13711, Request for Appeal of Offer in Compromise.
  • You must file and pay your taxes on time for five years after your offer is accepted. If you don’t, the IRS can terminate the offer and reinstate your full liability including accrued penalties and interest, minus any OIC payments and refunds applied after acceptance of the offer.

Need help with a specific tax problem?

The Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service (IRS) that helps taxpayers and protects taxpayers’ rights. We can offer you help if your tax problem is causing a financial difficulty, you’ve tried and been unable to resolve your issue with the IRS, or you believe an IRS system, process, or procedure just isn’t working as it should. If you qualify for our assistance, which is always free, we will do everything possible to help you.

Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Read more about the kinds of problems TAS handles and how we may be able to assist you with yours.

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