The Offer in Compromise (OIC) is one of the few options available to taxpayers to reach an agreement with the Internal Revenue Service (IRS). This program allows you to settle your tax debts for less than you owe. According to the Federal Reserve, about 30% of Americans are unable to cover an unexpected expense of $400. This shortfall can be almost catastrophic if they file their tax returns, only to discover afterward that they owe a substantial tax amount to the IRS.
What is an Offer in Compromise?
An Offer in Compromise allows taxpayers to settle their tax debts for less than the full amount owed. This program is available to those who need it, meaning that the IRS will evaluate your income, expenses, assets, and overall ability to pay your debts when considering your offer.
How to Qualify for an Offer in Compromise?
There is no guarantee that the IRS will accept your Offer in Compromise. The IRS bases its decision on several factors. After reviewing your financial situation, the IRS may approve your offer for one of the following reasons.
Doubt as to Liability
The IRS may agree to your offer if there is some doubt as to whether you owe the tax legally. For example, if you believe there is an error in your tax return, you can use the Offer in Compromise to address this error. However, you should keep in mind that you can also amend a tax return, and this may be a simpler way to resolve issues in this regard.
Doubt as to Collectibility
The IRS may also agree to your request if, based on the documentation you provide that outlines your current financial situation, it appears very unlikely that you will be able to pay your tax debt in full. In this case, when you total your income and asset value, it may be less than what you owe.
Effective Tax Administration Issues
Finally, the IRS may agree to your request if “full payment would create economic hardship or would be unfair and inequitable due to exceptional circumstances.” If you meet the criteria for this reason, it outweighs other issues such as collectibility or doubt as to liability; even if you know you owe the debt and have the assets to pay it, you can still qualify for this reason.
Getting Instructions and Forms
You can obtain all the forms and instructions for Offers in Compromise in a booklet on the IRS website. It’s called Form 656-B. You can also call the IRS at 1-800-829-3676 and ask to have the booklet mailed to you, or you can get it from your local taxpayer assistance center.
Alternatives to an Offer in Compromise
The IRS offers at least four other options for resolving tax debts.
One alternative option is to enter into a monthly installment agreement to pay off your tax liability with the IRS. The short-term payment plan gives you an additional 120 days to come up with the money if you believe you can eliminate your debt in that timeframe. Otherwise, if it takes longer, you can request to enter a long-term plan. Certain restrictions apply, and there may be application fees depending on your situation.
If the IRS determines that it is currently unable to collect your debt, it may agree to temporarily cease collection of the tax debt voluntarily. The debt will not disappear through this program, but it gives you some time to get back on your financial footing.
The partial payment installment agreement program offers a long-term payment plan to settle your debt with the IRS for less.
You can
Also, filing for bankruptcy, but there are very strict rules regarding the tax debts that can be settled and those that cannot be wiped out in a Chapter 7 or Chapter 13 bankruptcy proceeding.
Frequently Asked Questions (FAQs)
How can I get an Offer in Compromise?
To get an Offer in Compromise from the IRS, you will need to fill out Form 656-B, which is available on the IRS website. To qualify, you must prove that the tax debt is incorrect, or that the debt is uncollectible due to your financial situation or exceptional circumstances.
How long does an Offer in Compromise take?
Estimates from tax professionals vary: the process can take anywhere from six to 14 months or more, during which time you must make payments as proposed and file tax returns timely. However, if the IRS does not respond to the offer with a rejection within 24 months, the offer is considered accepted.
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Sources:
– The Federal Reserve
– IRS
– Taxpayer Advocate Service at the IRS
– IRS – Free phone service
– IRS – Additional information on payment plans
– IRS – Temporarily suspending collection process
– Taxpayer Advocate Service at the IRS – Partial payment installment agreements
– IRS – Notice 2006-08: Advance payments for Offers in Compromise
Source: https://www.thebalancemoney.com/offer-in-compromise-settle-your-tax-debt-3193551
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