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Offer in Compromise (OIC)

Learn more about an Offer in Compromise and how it can help your tax situation. There is a lot you need to know...

An Offer in Compromise Could Be Your Answer

An offer in compromise is one of the programs the IRS offers that allows you to settle your tax debt for less than the full amount you owe. You may qualify for this option if you have no way of paying your back-tax debt or doing so would create a significant financial hardship.

To determine eligibility, the IRS analyzes the taxpayer’s income, expenses, and assets, which allows them to see a snapshot of your ability to pay the debt. The IRS accepts offers that they perceive as the most they can reasonably collect on the debt in a practical period of time. Qualifying for this program may be tricky but rest assured that if an offer in compromise isn’t the right program for you, there may be other options.

Hire a tax professional to help you gather the necessary documents, construct an offer and present it to the IRS. A licensed and knowledgeable tax professional on your side increases the likelihood of your approval.

The Basics of Offer in Compromise

Make no mistake that the IRS will certainly attempt to collect the full value of the debt you owe, however; they have a rational understanding that hardships may occur, making a large tax debt insurmountable for some taxpayers.

If a lump-sum payment or reasonable installment agreement can be accomplished that allows full payment of the back-tax debt, the IRS will deny the offer and require full payment.

 

Reasonable Collection Potential

In addition, the taxpayer is expected to make an offer of payment that’s equal to or greater than their “reasonable collection potential.” The reasonable collection potential, also known as the RCP, combines the value of the taxpayer’s assets to determine if the debt can be paid.

The RCP is then considered in the taxpayer’s eligibility for an offer in compromise.

When Offers in Compromise Are Accepted

The IRS may accept an offer in compromise based on Doubt as to Collectability, Doubt as to Liability and Effective Tax Administration.

Doubt as to Collectability

Doubt as to Collectability indicates that the taxpayer can’t pay their tax debt on their own within a reasonable amount of time.

Doubt as to Liability

Doubt as to Liability indicates that the assessed tax debt was likely in error by an IRS agent.

Effective Tax Administration

Effective Tax Administration allows an offer in compromise, even if the tax assessment is correct and collection of the full amount is possible. In Effective Tax Administration cases, the taxpayer must show the IRS that paying the debt would create an economic hardship or would be unfair and inequitable.

An example of an Effective Tax Administration case is a couple who care for a dependent with a long-term illness. While they may have a savings account with a balance high enough to pay off the tax debt, it would dissolve funds saved to care for the dependent in the future.

Offer in Compromise Payment Options

Lump Sum: A lump sum must be submitted to the IRS in no more than five payments once they’ve accepted the offer. The application must include the first payment of at least 20 percent in addition to the application fee.

Short-term Periodic Payment: Similar to a short-term installment agreement, this extends the terms of payment from five months to 24 months. Each payment is non-refundable, and the application must include the first proposed installment and the application fee.

Deferred Periodic Payment: Choosing this payment option allows the taxpayer to make affordable payments monthly throughout the remainder of the collectible period in the current statute. The first proposed installment and the application fee must be included when submitting the application, and continuing monthly payments should be remitted during the agent’s consideration of the offer application.

Before filing the application with the fee and proposed first payment, be thoroughly familiar with the program you’re applying for; if it’s not accepted, the IRS will not send them back.

Your proposed initial payment will be applied to your debt, even if the offer isn’t accepted. Submitting an offer in compromise to the IRS is a tempting way to resolve back tax debt, as the thought of settling your debt for less than the total due would be quite a relief.

However, navigating this comprehensive process can be daunting with so much at stake. Receiving an acceptance of your offer in compromise can be tricky, but with the help of a knowledgeable and reputable tax professional, a determination in your favor is much more likely.

At Tax Champions, we strive to achieve the lowest possible tax-debt payment that our clients qualify for. Not only will we communicate and negotiate with the IRS on your behalf, but we’ll complete the appropriate forms and submit them for approval.

Our A+ rating at the Better Business Bureau will help you sleep better at night knowing that Tax Champions is protecting you from further tax collection efforts. Give us a call today at 800.518.8964. We’re available to take your call in the evenings and on the weekends, in addition to standard business, hours for your convenience.

Sources

[1] Offer in Compromise. (2019, January 17). Retrieved from //www.irs.gov/payments/offer-in-compromise

[2] 4.18.3 Effective Tax Administration Offers. (2017, September 10). Retrieved from //www.irs.gov/irm/part4/irm_04-018-003

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Walter Wotman, CPA

Founder & Managing Partner

Walter Wotman, CPA is the author of "Tax Champions Guide to Tax Resolution." Amazon #1 Best Seller in the Personal Finance category. He is one of America's most experienced tax negotiators with over 35 years of experience helping thousands of clients settle difficult back tax issues.
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