Firstly, an individual must have filed every tax return that is overdue.  Additionally, the taxpayer needs to have completed all tax returns in the previous six years; however, the time frame may be extended depending on the circumstances, and the taxpayer may not be required to file in years that he/she did not make sufficient income to warrant a tax return.

The second concern is that the taxpayer be in compliance with all current tax payments.  In cases of individuals who are self employed or receive revenue from dividends or royalties, compliance includes estimated tax payments, which must be made four times per year, after each quarter.  So, for example, before a self-employed wage earner can resolve his/her tax debt, the IRS demands that he/she make all requisite Estimated Tax Payments.  It is advisable to know whether you are deemed compliant by the IRS, and if not, how you can take steps to obtain compliance status.

After each quarter, as the individual accrues income from sources that do not automatically withhold income for the federal government, the individual pays estimated tax payments on that income.  Both ways of remaining compliant with the IRS, that is, by withholding funds from paychecks and submitting ETPs, are designed to help the taxpayer avoid accumulating IRS tax debt.  ETPs are a little more involved, but all the relevant information can be found in the Estimated Tax Worksheet.

There are a number of reasons why an individual would want to send in ETPs regularly.  Firstly, it makes budgeting concerns easier, since tax payments are smaller and made more regularly, they are more easily planned.  Secondly, should the individual accrue an IRS tax debt, having submitted ETPs regularly and on time improves the individual’s prospects for resolving his/her tax debt.  In short, ETPs help the taxpayer avoid trouble with the IRS while serving as insurance that, should something unforeseen occur that drives an individual into tax debt, the individual would be better prepared to cope with the problem without significant or longstanding financial harm.

Based on the current economic downturn, many taxpayers find themselves unable to pay their tax bill. That’s why many request an offer in compromise from the IRS. But an offer in compromise is not for everybody. Many people believe that if they currently do not have the funds on hand then the IRS will automatically settle on the tax debt. This is simply not the case.

Prior to submitting your request for an offer in compromise, make sure that you explore all other options first. You may be able to borrow funds from family or friends and or even be able to take out a personal loan.

Taxpayers must file Form 656 if there is uncertainty that the tax liability could be collected in full via a lump sum payment or an installment agreement. Taxpayers should file Form 656-L when they believe that the tax liability claimed by the IRS is incorrect. You are not allowed to file offers simultaneously and claim both that the tax liability is incorrect along with an inability to pay the tax liability due.

One issue that many taxpayers fail to pay close attention to is making sure that all the required information gets properly submitted on a timely basis. If you don’t send the IRS the proper information or if your information is incomplete it will substantially delay the process. It may then take months to get information as to whether the offer in compromise was accepted.

Along with your completed forms you must make sure that you make the required payments. The general rule that you must follow when determining how many offers and the related application fees due is that there is one payment fee and form per entity. Form 656-B contains an application fee and a payment matrix that will help you determine the number of forms that must be filed and how many application fees are required.

If you want any hope of success you must make sure that you stay current with all your tax filings and payment requirements, including estimated taxes and federal tax deposits. Becoming delinquent or filing late could put an end to any chance of success you may have had.

An offer in compromise is not for all taxpayers. Most will not qualify because they have financial resources or the ability to make installment payments. If you believe that you qualify make sure you are diligent in your efforts and provide the necessary paperwork. Then be prepared to wait.

Often there are circumstances that arise when a taxpayer has accumulated a substantial tax liability that clearly exceeds any ability to pay in a lump sum. In this situation, the taxpayer should consider hiring an Offer in Compromise attorney to handle the negotiations with the IRS.

The IRS applies the same collection standards utilized in installment agreements to offers in compromises. They will allocate an amount for clothing, food, housing related costs, vehicle transportation, and medical or dental costs. They will also consider any legal cash commitments like student loans, alimony and child support. Ultimately, based on this analysis, the IRS determines whether it is possible to grant relief under an offer in compromise.

Most offers in compromise are denied as the IRS recently stated that over 83% of the offers are rejected. The two main reasons that rejection occurs is because the documentation is inaccurate or incomplete or the taxpayer earns in excess of the required allowance. Your offer in compromise attorney will make sure that your filing is accurate and complete.

Upon submission of the OIC, the IRS must verify that the offer can be processed. The offer goes through a screening process to determine if the taxpayer or taxable entity has: (1) paid the required application fee; (2) ensured that all delinquent tax returns have been filed; (3) not instigated a bankruptcy court proceeding; and (4) not been issued an audit notification.

Hiring an offer in compromise attorney can help you improve the chance that your offer will get accepted. At a minimum they can review your situation and provide you valuable information that will allow you to make an informed decision.