Offer in Compromise
What is Offer in Compromise (OIC)?
Offer in Compromise (OIC) allows you to settle your tax debt for less than the amount you owe. Offer in Compromise was created for those in tax debt that could not pay off their debt in full without experiencing financial hardship in doing so. In some cases, it may be impossible to pay your full tax debt due to your financial situation, even with the help of installment plans and other tax resolution. In situations of severe inability to pay off tax debt, an Offer in Compromise can be a great deal of help. By negotiating an amount with the IRS, you can pay off your debt by an exponentially smaller amount and your slate is wiped clean. You must submit the proper forms and the amount you offer must meet their specific set of rules and considerations. For more information, visit our tax problem resolution page.
Types of Offer in Compromise:
There are three different situations that make you eligible for an Offer in Compromise:
Doubt as to Collectability
This is the most common type of OIC. This is for people whose assets and income are less than the amount of tax debt owed and therefore, the full amount may not be collectable, This means that the taxpayer can settle for an amount that is less than the full amount.
Doubt as to Liability
The taxpayer does not think that they owe part or all of the debt in question.
Effective Tax Administration
The taxpayer owes the full debt without any doubt and is capable of paying off the full amount but paying off the full amount of tax debt may result in financial hardship for the taxpayer.
Are you eligible for Offer in Compromise?
Before you can apply for an OIC, you must meet a certain set of IRS requirements. In addition to these requirements, you must make sure that all of your tax documents have been filed on time. You should not have any past due penalties remaining on any previous tax debt.
According to the eligibility requirements for approval for OIC, you must also meet the following requirements before filing or your application will be discarded:
- file all tax returns you are legally required to file.
- have received a bill for at least one tax debt included on your offer.
- make all required estimated tax payments for the current year.
make all required federal tax deposits for the current quarter if you are a business owner with employees.
Your offer will be immediately returned without further consideration if you have not filed all tax returns you are legally required to file.
- You must not have any open bankruptcy cases.
- You must not be able to pay the debt in full through a payment installment plan or with any current or future assets.
What to consider when negotiating an offer:
- When applying for an Offer in Compromise, you will fill out IRS Form 656.
- You must consider your “reasonable collecting potential” when setting up an offer.
- To the IRS, ‘reasonable collecting potential” means that your offer must be at least equivalent to your current assets as well as your anticipated income and assets, minus your basic living expenses.
- 1. Both you and the IRS agree that there is no possible way that you can pay the full tax debt amount without potentially experiencing financial hardship.
- 2. You offer to pay the maximum amount that you can afford without experiencing financial hardship, even if the amount offered is significantly less than the full amount owed.
- 3. The IRS accepts the offer as the most you can reasonably pay.
- 4. You decide whether you want to pay the full amount up front or in installments.
- 5. Once you pay off the amount accepted by the IRS, the debt is considered “paid in full”.
The application process for Offer in Compromise involves a lot of math and many forms. It is most beneficial to speak to a tax professional when considering filing for an Offer in Compromise due to the complicated process. Give us a call today. We can help you decide if filing for an Offer in Compromise is the best course of action for you and your business.