Offer in Compromise of Tax Liability
If you are unable to pay your full tax liability, or paying in full would create significant financial hardship, or if you have a legitimate doubt that you owe part or all of the tax TTB says you owe, you or your authorized representative (power of attorney) may submit an Offer in Compromise to resolve your tax liability by paying an agreed-upon, reduced amount.
An offer in compromise is an agreement between you and TTB that allows you to settle your tax liability for less than the full amount you owe.
Generally, you won't qualify for an Offer in Compromise if you can fully pay your liability through an installment agreement or other means. Explore all other payment options before submitting an Offer in Compromise.
TTB will consider an Offer in Compromise when there is legitimate doubt as to whether you actually owe the amount we have determined is due (i.e., doubt as to liability), or when there is doubt that you will be able to pay the full amount due immediately or in the future (i.e., doubt as to collectability).
When there is doubt as to collectability, we generally seek an offer that represents the most we can expect to collect within a reasonable period of time. To make this determination, we review the financial information you submit with your offer and consider the amount of your bond (if any).
If we accept your Offer in Compromise, you have two options: 1) you must make a lump sum payment, or 2) you may request to make installment payments.
If we reject your offer you may propose an alternative amount.
If you are making an offer based on your inability to pay, you must be able to demonstrate that you have exhausted other options for paying your tax liability, or that paying the full amount will cause you significant financial harm.
If you are making an offer based on doubt as to liability, you must be able to provide evidence to establish doubt as to the amount of tax TTB says you owe.
To make an Offer in Compromise that includes installment payments (generally for a period not to exceed three years), you must be able to demonstrate your ability to make the established payments for the duration of the agreement and timely pay all taxes and file all applicable returns when due.
You must agree to the terms and conditions appearing on TTB F 5640.1 Offer in Compromise.
You are not eligible if you are in an open bankruptcy proceeding.
Complete TTB F 5640.1 Offer in Compromise including a thorough discussion of the facts and reasons for submitting the offer along with a justification for why TTB should accept the offer.
With very limited exception (see Note), you must submit payment with your offer.
- If you are making a lump-sum offer (any offer of payments made in 5 or fewer installments), the initial payment must be equal to 20% of the amount of the offer.
- If you are making a periodic payment offer, the initial payment must be equal to the first proposed installment payment.
Note: Under Section 1102 of the Taxpayer First Act, an individual taxpayer/sole proprietor whose adjusted gross income for the most recent taxable year did not exceed 250% of the applicable poverty level is not required to send payment with an offer.
If you are basing your offer on your inability to pay your full tax liability (doubt as to collectability), also send:
- Collection Information Statement (and any attachments required by that form)
- The three most recent months of statements for all company financial accounts, such as checking, savings, money market, brokerage, etc.
- The three most recent months of statements for all real estate holdings and business assets with an encumbrance, such as a mortgage, lien, or other claim against the property by someone other than the owner.
- Copies of your current debt/loan agreements.
- Your latest balance sheet.
- Your latest profit and loss or income statement.
- Your last two federal (business) income tax returns.
Mail the completed TTB F 5640.1, Offer in Compromise, with payment, and the additional information required if you are asserting doubt as to collectability to:
Office of Permitting and Taxation
Alcohol and Tobacco Tax and Trade Bureau
550 Main St., Ste. 8002
Cincinnati, OH 45202-5215