If you owe a substantial amount of back taxes that you will not be able to repay to the IRS, you may consider applying for an offer in compromise. This provision allows eligible taxpayers to drastically reduce or eliminate their outstanding tax liability. Learning how to qualify for an offer in compromise can help you to make a successful request and have your offer accepted by the IRS.

File All of Your Past Returns

In order to have your request for an offer in compromise approved by the IRS, you must have filed all of your previous year returns. This means that you cannot have any outstanding tax years where you didn't submit a return. Since you can go back and file your past returns at any time, you'll want to complete and submit any past unfiled returns before you begin the process of applying for an offer in compromise.

Check Your Current Financial Standing

Along with the filing requirements, the IRS also requires that you meet certain financial conditions before you receive an offer in compromise. If you're currently in bankruptcy or undergoing an IRS audit, you will not quality for the program. You must also provide proof that repaying your outstanding balance would be almost impossible for you in your financial situation. You may need to submit copies of your bills, documentation of your income, and bank account statements to back up your claim.

Double Check Any Estimated Tax Liability

Self-employed taxpayers are often required to make estimated tax payments during the tax years. These payments must be submitted in four installments - one in each fiscal quarter. If you are self-employed and you're required to make estimated tax payments to the IRS, you must be up-to-date on these payments before you can apply for an offer in compromise. This may sound contradictory, but since estimated tax payments cover payroll taxes, they have no bearing on federal income tax liability.

Submit an Application

If you meet all of the above conditions, you may be eligible to qualify for an offer in compromise. To apply, you must pay an upfront fee of $150 and then complete the application. You can download a copy of the application on Form 656-B by visiting the IRS website. Along with the form are detailed instructions on how to complete the application.

By checking the eligibility requirements for qualifying for an offer in compromise, you may find out that you're eligible for tax relief from the IRS. Since the qualification process can be a long procedure, you might want to get help from an experienced tax resolution professional before you begin your application.