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Procedure for an Offer in Compromise
An offer to enter into a compromise agreement
is called an Offer in Compromise. Offers in compromise generally
are made by the taxpayer and must be made on Form 656. In addition to the
form, a written position statement is usually included to bolster the taxpayer's
arguments. As part of the offer in compromise, taxpayers are required to
waive the benefit of the statute of limitations on assessment or collection
of the tax, thereby affording the Service time to review the offer. This
gives the Remittance of the amount offered in compromise, or a deposit
if the offer is to pay in installments, must also accompany the offer.
Inability to Pay Offers
For offers based on inability
to pay, taxpayers must submit a statement of financial condition (Form
433A - individuals or Form 433B - businesses) to enable the Internal Revenue
Service to analyze the taxpayer's ability to pay. The Internal Revenue
Service will require that the amount offered reflect the maximum amount
collectible from the taxpayer's current income and assets, and may also
require, as additional consideration for entering the agreement, that the
taxpayer execute one or more collateral agreements to secure additional
payment from his future income or to provide that the taxpayer forgo certain
other tax benefits.
Enforceability of a Compromise
After an offer is accepted by the Internal Revenue Service
official who has been delegated the authority to do so, the agreement is
binding and is enforceable as a contract, according to its terms. Neither
party may reopen a compromised case. The only grounds upon which a compromise
can be set aside are:
- mutual mistake of fact as to the agreement
- falsification or concealment of assets by the taxpayer
- grounds sufficient to set aside a contract generally.
A requirement of an accepted compromise is that the
taxpayer timely file and timely pay all required tax returns
for a period of 5 years. If the taxpayer files late or pays late,
the IRS can void the compromise agreement.
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