When you owe taxes, it might seem like the only out there is to pay the whole tax debt at once with one payment. While some taxpayers may have to do that, there are options out there for you that can help you resolve your tax debt for less than you actually owe. One of these options is an offer in compromise or OIC. An offer in compromise is an IRS resolution that allows you to settle your tax debt in two payments. If you think an OIC is right for you, here is what you need to know.
Offer in Compromise (OIC)
An offer in compromise is an agreement between the IRS and the taxpayer settling your tax debt for less than you actually owe. This is a resolution for taxpayers who can’t afford to full pay their tax liability, and if they did, it would create a financial hardship for them. If you are wanting an offer in compromise, there is a process you must follow. You can find all the forms in the Offer in Compromise Booklet, Form 656-B. One of the forms you must submit is Form 433-A for you as an individual or 433-B if it is for a business. With the form you will send in a check for the $186 non-refundable application fee and the initial payment. The initial payment will be a portion of the total offer you are making to the IRS to settle your tax debt.
An Offer in Compromise is a very appealing resolution to taxpayers as you can save thousands of dollars. But unfortunately, it is a very difficult resolution for people to qualify for. To even have your offer reviewed by the IRS, you must have filed all required tax returns and made any required estimated tax payments. If you are in an open bankruptcy proceeding, you are also not eligible for an OIC. The IRS will look at the following circumstances when considering if you qualify for an OIC and how much the OIC should be:
- Your ability to pay
- Your current income
- All expenses you’re currently paying
- Your assets and their equity
When the IRS does assign an Offer specialist to review your offer, they may ask for substantiation for expenses you are claiming or ask for recent bank statements. They will inquire into almost all aspects of your finances. They are trying to see if you have more money than you say you do. You or your tax attorney can argue for certain expenses and try to keep the offer amount low.
When you file an OIC, it typically takes 6-9 months before the IRS will review it. During this time, your payments will be applied to your tax liability. You may have a Federal Tax Lien filed against you and your property. Besides the tax lien, all other collection activities, i.e. levies and garnishments, will be suspended. The collection period for the IRS to come after you will be extended.
When the IRS assigns the specialist, they will contact you or your tax attorney and let you know if they are accepting the offer or if they are requiring more information. If they require more information, they will let you know what they need and give you a deadline. Missing a deadline may cause the specialist to reject or return your OIC. After getting the specialist the information you may need to defend your offer and it may take time before a decision is made. If the offer is accepted, you will make the payments agreed upon. If your offer is rejected, you may appeal it within 30 days of the rejection. The IRS Independent Office of Appeals will then look at your case.
After you make your last payment for your OIC, you must stay in compliance with the IRS for the next 5 years. Not filing a required tax return or paying your taxes due could cause problems for your original offer.
There are two options for dealing with the Offer. Your initial payment will be based on both your offer amount and the payment option you use. You can do one of the following:
- Lump-Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. If your offer is accepted, you will need to pay the remaining balance of the offer within five payments.
- Periodic Payments: You will submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until your offer amount is paid in full.
If you meet the Low-Income Certification requirements, you do not have to pay the application fee or the initial payment.
If an OIC is something you think may help you settle your tax debt, it’s best to consult with a tax professional. A tax attorney will be able to look at your finances and tell you if you have a chance. If you have a lot of income or equity, chances are the IRS will say you can pay the taxes. If you need tax attorneys help to settle your tax debt, give us a call at 844-841-9857 or click below to schedule a free consultation.