Offer in Compromise Attorneys
An offer in compromise (OIC) allows financially distressed taxpayers to settle their tax debts with the Internal Revenue Service for less than the full amount owed. While that sounds like a great deal for taxpayers who owe a lot of money, if you plan to seek an OIC from the IRS you must first show that you cannot pay your entire tax bill through other methods, such as an installment agreement.
Additionally, the IRS usually will not accept an OIC unless the amount offered is greater than the amount it could collect from you through other means. In other words, the IRS must determine that the value of your assets, bank accounts, and future income is less than the OIC amount.
What is an Offer in Compromise?
An OIC is an avenue for taxpayers who owe substantial amounts of tax debt to the IRS to prove their inability to pay the debt in full, usually due to economic hardship, and settle the debt for a smaller amount. Taxpayers who qualify for tax debt resolution through an OIC may find that large amounts, if not all, of their tax debt can be cleared. However, not everyone qualifies for an OIC. The IRS has stated that they generally approve OICs when the amount offered is representative of the most they can expect to collect in unpaid taxes within a reasonable period of time. Although the IRS does not provide a clear-cut definition of a reasonable time period, your tax attorney or Enrolled Agent may be able to provide you with more information. It is important to note that the IRS has no longer than 10 years to collect your unpaid taxes.
Do I Qualify for an IRS Offer in Compromise?
When the IRS evaluates your ability to pay your tax debt, they consider several factors including your monthly income and expenses and your equity in all of your assets. In general, when the IRS considers you monthly income and expenses it is to figure the Reasonable Collection Potential (RCP). The RCP is how the IRS will measure your ability to pay your tax debt. The RCP includes the total amount of money the IRS can expect to receive if it were to place a levy on your assets. It also includes amounts that the IRS anticipates you will earn in the future minus basic living expenses. The IRS uses Form 433 to determine your most of this information. Even if your assets and anticipated future income qualifies you for an OIC, you may still be disqualified based on other circumstances. For a full questionnaire that will help you determine your eligibility for an OIC, you can visit the IRS website. If tax related circumstances disqualify you, a tax attorney or Enrolled Agent may be able to help. Tax related circumstances that may disqualify you include the following:
- Must have filed all federal tax returns.
- Must have made all required estimated tax payments.
- Must have submitted all required federal tax deposits if you are self employed and have employees.
- Must not be in an open bankruptcy.
Estimated tax payments are payments made by individuals who meet certain thresholds for having income that is not subject to withholding. The most common forms of income that are not subject to withholding include self employment income, interest, and dividends.
Offer in Compromise Attorneys
Settling a tax debt through an OIC can be a long and complex process that can be intimidating to taxpayers who cannot pay their tax bill because they are already under financial stress. The experienced tax professionals with the Hillhurst Tax Group can help you assess whether the IRS will view you as a good candidate for an OIC and whether it will accept the amount of your offer. Our skilled staff will help you prepare and submit your OIC and represent you during the appeals process.
Offer in Compromise Guidelines
If the IRS accepts the OIC submitted by your tax attorney or Enrolled Agent, you will have a choice of paying the tax debt in a lump sum or within 24 months. Upon reaching an agreement to settle your tax debt with the IRS, you must strictly adhere to the terms and conditions of the agreement. If you do not abide by the terms and conditions of the OIC, then the IRS will consider your OIC to be in default. When an OIC is declared to be in default, the agreement is no longer in effect and the IRS may then collect the amounts originally owed (minus any payments that you made when the OIC was not in default), plus interest and penalties.
Offer in Compromise FAQs
How long does it take the IRS to approve an OIC?
It usually takes the IRS about six months to review your OIC and let you know if it was accepted. However, in some cases, it can take over a year for the IRS to perform its review. Your OIC will be automatically approved if it takes the IRS longer than two years to make a determination.
How do you apply for an OIC?
If you believe you qualify for an IRS OIC you will need to complete and submit an IRS Form 656, Offer in Compromise. If you are a wage earner or self-employed you must also include a Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals. If you are filing on behalf of a business, you will file a Form 433-B (OIC), Collection Information Statement for Business.
Can I Pay My OIC in installments?
You have the option of paying your OIC in a single lump-sum payment or in installments. If you agree to short-term periodic payments you must repay your tax debt within 24 months. If the IRS agrees to a deferred periodic payment, you must pay your tax debt within the 10 years the IRS has to collect on the debt under current tax laws.
While the IRS is considering your OIC you will need to make any periodic payments that are included in your offer.
Do I need to put down a deposit with my OIC?
If your OIC proposes a lump-sum offer payment to the IRS you will need to include a 20 percent non-refundable deposit with your offer. If you are offering to make periodic payments you must include the first payment with your offer. If your OIC is rejected by the IRS the payments will be applied to your outstanding tax debt.
Is there a filing fee for OICs?
You must include a non-refundable $205 application fee with your OIC.
Can the deposit and filing fee be waived?
The offer payment and the application fee will be waived if the IRS deems you a low-income individual based on your most recent federal income tax return. A taxpayer may also request a waiver based on the household gross monthly income reported on the Form 433-A that must be included with your application.
What are the prerequisites for filing an OIC?
To qualify for an OIC you must have filed all of the required returns and made all of your required estimated tax for the current tax year.
How does the IRS decide whether the amount of an OIC is acceptable?
The IRS usually rejects any OIC where the taxpayer has offered to pay an amount that is less than the IRS believes it could recover from you based on your assets, projected future income, and other factors. While the calculations the IRS uses to determine your reasonable collection potential are complex, it does offer an online tool to help you calculate a preliminary offer amount.
Can the IRS continue trying to collect after I file my OIC?
The IRS will suspend nearly all of its collection activities while it is evaluating your OIC. However, it is still allowed to file a notice of federal tax lien against you and the legal assessment and collection periods will be extended. Additionally, you will need to continue making payments under any existing agreements with the IRS while your OIC is under consideration.
What happens if my OIC is rejected?
If the IRS rejects your OIC you have the option of appealing the decision within 30 days of the IRS issuing the rejection letter by filing a Form 13711, Request for Appeal of Offer in Compromise. Your appeal will go before an appeals officer with the IRS Independent Office of Appeals. Since the Office of Appeals focuses on settling controversies without litigation, appeals officers often have more latitude to accept an OIC than other IRS employees.
Can I submit an OIC if I have declared bankruptcy?
The IRS will not accept your OIC if you have filed for bankruptcy.
What happens if I violate the terms of my OIC?
When you reach an agreement with the IRS to settle your tax debt through an OIC you will be expected to comply with its terms. Should the IRS find that you have violated the terms of the OIC you will be found to be in default and the IRS is no longer under any obligation to honor the agreement. The IRS can then take action to collect the entire amount of your original tax debt, including interest and penalties. Any payments you made under the terms of the OIC while it was in effect will be applied to your tax debt.