For a taxpayer, an Offer and compromise represents a great opportunity to resolve tax debt and move forward. For the IRS, accepting an Offer and compromise represents the same opportunity, but it comes with the expectation that taxpayers will begin to pay their taxes on time. The following are a few helpful tips and words of caution to anyone pursuing an Offer and compromise.

A tax Offer and compromise is merely an agreement between the IRS and a taxpayer whereby the taxpayer’s tax debt is settled for an amount that is less than the full balance that is owed. Generally, the IRS will not accept an Offer and compromise if it feels that the tax liability can be paid off in full either in a lump sum payment or through an installment agreement.

Upon accepting an Offer and Compromise, the IRS demands that the taxpayer remain up-do-date with their tax filings for five years afterward. Form 656 section V stipulates that, after having an Offer accepted, taxpayers must submit all tax returns in a timely manner. Failure to do so jeopardizes the status of the Offer.

In the event of an Offer becoming default, the original Offer and compromise becomes void; the full amount of the initial tax debt takes effect, complete with interest and penalties, and the duration of the Offer and compromise is added to the Statute of Limitation on the initial tax liability.  For these reasons, it is important to know all of the rules and regulations that provide the framework for Offers.

Don’t forget to pay your application fee or your offer could be rejected. For married couples who have the same joint tax liability, they can file just one Form 656 and list the joint liability. A fee of $150 must be attached to the form. When a married couple has a joint liability and one of the spouses has an individual tax liability, two offers and two application fees are required.

Once the applicable forms are filed, make sure to respond promptly to any additional requests the IRS may have. Often the IRS will just need clarification on your personal information or financial situation. A timely response will make it easier to get a tax Offer and compromise accepted.