There are 2 reasons you can make an Offer in Compromise: Doubt as to Collectibility & Doubt as to Liability, or both. To start the process of an Offer in Compromise for Doubt as to Collectibility you must complete Form 656, which is included in the Form 656-B booklet.
To see if you can "pre-qualify" use the IRS OIC Prequalifier tool. You must not be in a bankruptcy, have filed all tax returns, made any estimated payments required & made all required employee tax deposits, including the supplement.
You can make a lump-sum offer (preferred) or a payment plan which will extend for 5 years, based on the bankruptcy rules.
During the offer the IRS may file a lien but they will suspend collection activities. However, just by making an offer (regardless of whether it is accepted or not) all applicable statutes of limitations will be extended by the time period the offer is being considered plus 1 year.
Given the IRS rate of rejection, it should be anticipated that you will have to Appeal an unfavorable ruling. (See Form 13711).
For Offers based on Doubt as to Collectibility you goal is to show you can't pay and won't be able to pay in the foreseeable future. For offers based on Doubt as to Liability you must show you don't owe it, much like an Audit Reconsideration. Please take our Webinar for Form 433A to prepare you to make an Offer in Compromise.
Every case requires different levels of proof & different qualifications. For Doubt as to Collectibility in general, be prepared to show you have a lot of on-going bills or support obligations. It helps if you have some kind of medical or physical malady. So, please obtain any doctor or medical reports you have on yourself or family member to give to the IRS.
For Doubt as to Liability you may have to dig deep into your old records to get the evidence. Fortunately our online Audit Defense Program shows you how to get your evidence and present it to the IRS to win!
In either event it is helpful to have legal advice PRIOR to making an Offer with the IRS. An offer is only 1 tool to be used to reduce or erase your IRS debt. ALL options should be explored before making a decision. So, you need to obtain your Account Transcripts from the IRS, gather your tax returns, your credit report, any divorce or bankruptcy papers & all IRS notices you have received. Call our office so we can sit down & create an Action Plan to fight the IRS!
J. David Hopkins