IRS Offer in Compromise Application - Tax Experts at Tax Resolution Services

The U.S. Office of Management and Budget encourages agencies to implement these fees to recover the cost of providing special services to some recipients that others do not use.

The IRS has established a user fee that will recover part of the cost of processing and reviewing Offer In Compromise requests.

The IRS has chosen to call it an "application fee" because the fee is required when an Offer In Compromise application is submitted for consideration.

How much is the application fee and when does it begin?

The application fee for submitting an Offer In Compromise is $150 and will be required on all offers that are postmarked November 1, 2003, and thereafter.

Who has to pay the application fee, and the lump-sum and periodic payments?

All taxpayers who submit a Offer in Compromise postmarked November 1, 2003, and thereafter, must pay the $150 fee, and the 20% lump-sum or periodic payments except in two instances:

The Offer In Compromise is submitted based solely on "doubt as to liability".

The taxpayer's total monthly income falls at or below income levels based on the Department of Health and Human Services (DHSS) poverty guidelines.

What method of payment does the IRS accept?

A check or money order made payable to the United States Treasury.

Can I send cash as payment for the application fee?

No. Taxpayers must send a check or money order for the application fee, the 20% lump-sum, or periodic payment made payable to the United States Treasury.

Can I send one check to cover the application fee, 20% lump-sum deposit, periodic payment amount, and the Offer In Compromise amount?

No. Taxpayers must initially pay the application fee and also include, in a separate check, the 20% lump-sum deposit or periodic payment amount with the offer.

After the IRS accepts the Offer In Compromise, the IRS will notify the taxpayer to promptly pay any unpaid amounts that become due under the terms of the Offer In Compromise agreement.

Can a tax practitioner who represents a number of clients and files multiple Offer In Compromise combine several application fees into one check?

No. Checks that combine application fees for several offers will not be accepted, and the offers will be returned. Each Offer In Compromise must have a separate check attached.

What happens if I submit an application fee, or lump-sum deposit payment or periodic payment, and find that I have insufficient funds in my account to cover the check?

If the IRS receives notification of insufficient funds, the IRS will immediately stop processing the Offer In Compromise, and the Offer in Compromise will be returned to the taxpayer without any further consideration.

Will payment of the application fee and the 20% deposit reduce the Offer In Compromise amount?

The 20% deposit on lump-sum offers and/or periodic payment on installment offers will be applied the offer in compromise amount if accepted, and to the outstanding original tax liability if not.

The application fee is in addition to the amount listed on the Offer In Compromise.

However, when the IRS determines the acceptable amount of an Offer In Compromise based on doubt as to collectibility, it considers the value of all of the taxpayer’s assets.

Because some of the taxpayer’s assets were used to pay the Offer In Compromise application fee, payment of the fee will reduce the acceptable amount of the Offer In Compromise.

The taxpayer therefore pays no more for an Offer In Compromise with the fee than the taxpayer would have paid without the fee.

Will the application fee, or the 20% lump sum deposit or the periodic payment amount create an additional financial hardship on taxpayers who are already having payment problems?

Because payment of the fee(s) reduces the acceptable Offer In Compromise amount, most taxpayers will not experience any additional financial hardship as a result of the fee.

However, for some taxpayers the $150 fee may exceed their ability to pay.

In most cases, the IRS exempts taxpayers whose income is at or below the poverty level from paying this fee.

What happens to my fee if the Offer In Compromise is not considered processible?

The application fee will be returned to the taxpayer if the Offer In Compromise is determined not to be processible.

The 20% lump-sum deposit and/or the periodic payment amount will not be returned, and applied to the outstanding tax liability balance, if the offer in compromise is determined not to be processible.

How do I know if I qualify for the income exception?

The IRS has developed a worksheet to assist taxpayers in determining whether they qualify for the income exception.

If they determine that they qualify, taxpayers must complete the “Income Certification for Offer in Compromise Application Fee,” and attach it along with the worksheet at the time of submission.

What do I need to do if the Offer In Compromise Application Fee Worksheet shows that I qualify for the income exception?

Taxpayers must sign and date "Income Certification for Offer in Compromise Application Fee."

If a taxpayer is submitting a joint Offer In Compromise with a spouse, the spouse must also sign the certification.

The Income Certification must be attached to the Offer In Compromise.

What happens if I submit the Offer In Compromise and the IRS later says I made an error and do not qualify for the poverty guideline exception?

The IRS will return the Offer In Compromise to the taxpayer without any further processing.

Does the poverty guideline exception apply to businesses?

No. The exception for taxpayers with total monthly incomes falling at or below income levels based on DHSS poverty guidelines only applies to individuals.

It does not apply to other entities, such as corporations or partnerships.

What happens if I do not submit the Offer In Compromise application fee, or the 20% lump sum deposit amount or the periodic payment amount, with the Offer In Compromise?

Unless the taxpayer has submitted an Offer In Compromise under the doubt as to liability provision showing a poverty guideline certification, the IRS will return the Offer In Compromise as not processible.

How is the application fee, or the 20% lump sum deposit amount or the periodic payment amount, collected?

The application fee, or the 20% lump sum deposit amount or the periodic payment amount, is collected when a taxpayer submits an Offer In Compromise.

The general rule is that the IRS needs as many Offer In Compromises as there are entities seeking to compromise.

A check or money order in the amount of $150 and the 20% deposit amount and/or the periodic payment amount, must be attached to each Offer In Compromise.

This assumes that the taxpayer does not meet one of the exceptions for paying the application fee:

The Offer In Compromise is filed solely under doubt as to liability.

The Taxpayer’s total monthly income falls at or below income levels based on the DHSS poverty guideline levels.

How many Offers In Compromise must I complete if my spouse and I are submitting one offer to compromise the same joint liability? How many application fees must be attached?

A married couple owing the same joint income tax liability may file only one Offer In Compromise listing the joint liability. One fee of $150 and one check for either the 20% lump sum deposit amount or the periodic payment amount should be attached to the Offer In Compromise.

A married couple opting to file separate Offers In Compromise for the same joint liability may do so, but two $150 fees and two 20% lump sum deposit checks, will be required.

This assumes that the taxpayer does not meet one of the exceptions for paying the application fee:

The Offer In Compromise is filed solely under doubt as to liability.

The Taxpayer’s total monthly income falls at or below income levels based on the DHSS poverty guideline levels.

When a married couple owes a joint liability and one spouse also owes an individual (non-joint) liability, how many Offers In Compromise are required?

Two Offers In Compromise are needed- One for the joint liability and another one for the individual (non-joint) liability. A check or money order for $150, as well as two separate checks for the 20% lump sum deposit amount, should accompany each Offer In Compromise.

This assumes that the taxpayer does not meet one of the exceptions for paying the application fee:

The Offer In Compromise is filed solely under doubt as to liability.

The Taxpayer’s total monthly income falls at or below income levels based on the DHSS poverty guideline levels.

How many Offers In Compromise are required from a married couple who owe joint income tax, plus the husband owes an individual year before he was married and a business liability, and the wife owes an individual year with her prior spouse? How many application fees will be required?

In keeping with the “one fee per entity” rule:

The husband should file one Offer In Compromise listing the joint income tax, the individual year he owes before the marriage and his business liability, and attach a $150 application fee, and the 20% lump sum deposit to the Offer In Compromise.

The wife should file an Offer In Compromise listing the joint income tax and the individual year that she owes with her prior spouse, and attach a $150 application fee, and the 20% lump-sum deposit check, to the Offer In Compromise.

It does not matter that the joint liability will appear on both offers.

This assumes that the taxpayer does not meet one of the exceptions for paying the application fee:

The Offer In Compromise is filed solely under doubt as to liability.

The Taxpayer’s total monthly income falls at or below income levels based on the DHSS poverty guideline levels.

How many Offers In Compromise are required if you have an individual who owes tax and who also owes a partnership debt as a general partner or corporate debt from a closely held corporation? How much would the application fee be?

In this situation, two Offers In Compromise will be required.

One for the individual liability, and the other for the partnership or corporate liability.

A check or money order for $150, and a check for the 20% lump sum deposit, must be attached to each Offer In Compromise.

The IRS cannot combine individual tax on an Offer In Compromise application with taxes owed by a partnership or corporation.

This assumes that the taxpayer does not meet one of the exceptions for paying the application fee:

The Offer In Compromise is filed solely under doubt as to liability.

The Taxpayer’s total monthly income falls at or below income levels based on the DHSS poverty guideline levels.

Taxpayers are required to submit one fee and one 20% deposit for each Offer In Compromise submitted for processing.

Failure to submit additional Offers In Compromise with the corresponding $150 application fee and the 20% deposit when requested, will cause the IRS to return the offer without any further consideration.

The $150 application fee and deposit will be retained.

What happens to the Offer In Compromise and the application fee and 20% deposit or periodic payments, after I send it to the IRS?

The $150 and the 20% deposit or the periodic payment is retained until the IRS determines whether the Offer In Compromise is processible.

The fee(s) and the 20% deposit will be applied against the amount of the offer and not be refunded to the taxpayer.

What if my Offer In Compromise is not accepted, will the application fee, the 20% lump sum deposit and/or the periodic payment amount, be refunded to me?

No. The IRS will retain the fee, the 20% deposit and the periodic payment amount, when:

The taxpayer's initial Offer In Compromise amount is too low - based on the IRS evaluation of the taxpayer's financial condition - and the taxpayer is given the opportunity to increase it.

If the taxpayer does not increase the Offer In Compromise amount, or show special circumstances, the IRS will reject the Offer In Compromise.

The taxpayer fails to submit additional financial documents to assist in the IRS review.

If the taxpayer fails to respond, and/or submit the requested information, the Offer In Compromise will be returned without further consideration.

The taxpayer chooses to withdraw the Offer in Compromise.