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.