What is Offer In Compromise?
When a tax bill is more than an individual can financially afford, it may be possible to file for an Offer in Compromise. An Offer in Compromise is an agreement (OIC) between the Internal Revenue Service and a taxpayer. This program settles the taxpayer’s liabilities for less than the total amount owed. This option is for those who cannot pay the tax bill in full or doing so would create a severe financial hardship.
No matter the reason for the inability to pay a tax bill in full, the IRS will take necessary actions to collect the money owed. Some methods of collecting liability include garnishments, tax liens, and a tax levy. Collection attempts will continue until the liability is paid in full or the taxpayer has agreed with the IRS to pay or settle the liability. An OIC is one way to settle the liability and get relief from IRS collection activities.
What Factors Contribute to an Offer in Compromise Letter?
When applying for an Offer in Compromise, the IRS looks at many factors. Things like the ability to pay, income, expenses, and equity in assets help determine if taxpayers are qualified for an OIC. In many cases, the Offer in Compromise could be acceptable when the IRS realizes the amount of money offered in the settlement is the maximum amount they can possibly collect.
The taxpayer should research to make sure that they qualify for this program before filing for an Offer in Compromise. If eligible, the next step is to prepare and submit a full financial statement and Offer in Compromise Form 656. When filing for an Offer in Compromise, include all documentation that supports the case like proof of income, expenses, and other required financial documents. The completed Offer in the Compromise package includes IRS forms 433A-OIC and Form 656, application fee initial 20% down payment, and financial supporting documents. If the taxpayer qualifies for a low-income exclusion and waiver the application fee and initial down payment could be waived.
How are OIC Payments Arranged?
Once an Offer in Compromise is approved, how the taxpayer pays the accepted offer amount will vary on the agreement and payment option selected. Payment options include a lump sum cash offer or periodic payment offer. Periodic payments are usually made monthly.
If approved, any tax refunds owed within the calendar year in which the Offer in Compromise is approved will be applied to the total back tax liability. The terms of the agreement will not be released until the tax lien has been satisfied. If the Offer in Compromise terms defaults, the collection attempts may start again. However, once the total accepted Offer in Compromise amount gets paid, the tax liability will be written off or satisfied.
If the Offer in Compromise offer is rejected, the taxpayer has 30 days to request an appeal. When filing an appeal, it may be best to seek the assistance of a tax professional or expert.
Those who require help with filing for an OIC with Internal Revenue Service may want to seek the assistance of a qualified tax professional. The qualified tax professional will review your financial situation to determine if you qualify for the OIC program.
The tax professionals at Coast One Tax Group can help clients with the IRS granting an Offer in Compromise letter. If an Offer in Compromise is not the best option, Coast One can help clients determine if there is a better program available to resolve IRS back taxes.