To be eligible for the IRS’s Offer in Compromise program you must first make sure you are up to date on your filings and any payments owed. The IRS requires that you have filed all your tax returns, made all estimated tax payments, and made you federal tax deposits.
What Filings are Required?
You must file all required tax returns. If you do not have any employees, this is just your end of year tax return. You have to file it and if you have failed to file in a previous year, you must catch up and file now. If you have employees you have to make additional filings due, including a quarterly federal tax return.
Who Must Pay Estimated Tax Payments?
Just about everybody. If you are an employee of a company, the estimated tax payment is the withholding coming out of your paycheck. If you own a business or get income from some other source that does not automatically withhold the amount, then you should make estimated tax payments throughout the year. Not only can a failure to make these payments stop you from filing an offer in compromise, the IRS may also penalize you for underpayment.
Who Must Pay Federal Tax Deposits?
Only taxpayers who have employees. A federal tax deposit is made up of the tax withholding from an employee’s salary. A taxpayer who has employees must periodically pay this withholding amount as it is accrued. Failure to do so may result in penalties and will not allow the taxpayer to take advantage of the Offer in Compromise Process.
Getting into a position to make an offer in compromise is challenging and the IRS does not necessarily know at first if you are missing one of the above items. You could spend a substantial amount of time working with the IRS on an offer before they discover an error and bar you from their program. In order to make sure your Offer in Compromise is acceptable to the IRS, I recommend speaking with a tax attorney.