Offer in Compromise

What is Offer in Compromise (OIC)?

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. 

Offer in Compromise (OIC) allows you to settle your tax debt for much less than the amount you owe. Offer in Compromise was created for those in tax debt that could not pay off the debt in full without experiencing financial hardship by doing so. 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. See more of our tax problem resolution.

Offer In Compromise
Offer In Compromise

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 thus, the full amount may not be collectable and 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 requirements listed by the IRS. In addition to these requirements, you must make sure that all of your tax documents have been filed on time and that you do not have any past due penalties remaining on any previous tax debt.

 

According to the eligibility requirements for being approved for OIC, you must also meet these requirements before filing or your application will be discarded:

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.

 

For example,

The Process:

Next Step

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 and we can help you decide if filing for an Offer in Compromise is the best course of action for you and your business.

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