Hi! So I fell chronically ill and was not able to work for an entire year (since August 2022) so now I have no money to pay last year's 2022 taxes on freelance independent contract work I did (no taxes were paid from it yet). I filed my taxes but was unable to pay anything for Fed or State (all taxes still owed). I am still out of work /have no current income, and I am on Medi-Cal and EBT. This is the first time ever I have not been able to pay.
Questions:
1) Do I qualify to settle my tax debt with an offer in compromise?
2) How do I apply for this settlement / who should I call or what do I fill out?
3) When I went on irs.gov/offers to see if I qualified they asked "
Have you made all required estimated tax payments?" --can you tell me what that means? If I say no (because obviously I cannot afford to pay anything) it says that disqualifies me, but that makes no sense! Because the whole point of settling an offer in compromise is exactly because I cannot pay anything. Would you mind explaining how a settlement works and what you think my best options are/what I qualify for in my situation. Thank you so much!!
HI
IRS form 656 applies for an Offer in Compromise. From a practical application the offer should detail how the amount offered is equal to greater than than reasonable collection potential, or demonstrate a serious doubt as to tax liability. See below link for more details.
1) Do I qualify to settle my tax debt with an offer in compromise?
You would have to file a form 433-A (OIC) with the IRS. In my experience an OIC is accepted when you do not have a great amount of income or assets. If you have any significant income or assets, you would not be accepted. https://www.irs.gov/payments/offer-in-compromise
2) How do I apply for this settlement / who should I call or what do I fill out?
The following links provide IRS information for you to review.
https://www.irs.gov/pub/irs-pdf/f656b.pdf
https://www.irs.gov/pub/irs-pdf/f433aoi.pdf
3) When I went on irs.gov/offers to see if I qualified they asked "
Have you made all required estimated tax payments?" --can you tell me what that means?
You must be in compliance for an OIC to be approved. This means all tax returns have been filed not all taxes paid. This allows the IRS to determine if they are able to timely collect the outstanding taxes within the 10 year statue of limitations.