TAX SOLUTIONSOffer in Compromise
Even if you owe a lot of money to the IRS, all hope is not lost. In many cases, the agency is willing to work with you in reducing your debt to a more reasonable amount. This is called an offer in compromise, or OIC.
What’s an OIC?
In simple terms, an OIC is when you are able to pay a smaller percentage of your tax bill by convincing the IRS that you do not have enough money to pay back the entire amount you owe.
If you can prove that there is no way you can reasonably pay off your tax debt, the IRS will often agree to satisfy your debt at a lower price point. For example, if your tax debt is $20,000, an OIC may allow you to only pay $4,000 and have your debt considered paid in full.
How to Qualify
When you apply for an OIC, the IRS looks at specific circumstances to decide if you qualify for one.
The first is if the IRS determines there is reasonable doubt you will be able to pay your bill, usually because your income is too low or the assets you own aren’t worth enough to sell and cover the debt. The second is if you show the IRS that paying the full tax bill would cause you economic hardship.
The third circumstance is claiming that the amount owed to the IRS is incorrect. This is the rarest option and requires you to fill out an additional form.
In 2012, the IRS changed the rules regarding OICs. It used to determine settlement amounts by multiplying your monthly disposable income by 48 months. Now, it only multiplies your monthly disposable income by 12 months, resulting in you paying a quarter of what you would otherwise have paid.
In other words, if you apply for an OIC now, your payment would be lower than if you had applied in the past.
To qualify for an OIC, you must:
- File all of your tax returns
- Give the IRS all of the requested information
- Make all of your tax payments for the current year
Drawbacks of OICs
Applying for an OIC involves a lot of paperwork, including bank statements, pay stubs and other financial documents. Filing an application can take a lot of time, effort and organization.
You will also have to submit all of your tax returns and pay all of your tax bills on time for five years after the offer is accepted, so you’ll want to make sure you have a solid plan in place for how to manage your taxes in the future.
Plus, if your application is denied, you’ve now given the IRS information about your assets, which it can use in the collections process against you. Finally, interest continues to accrue throughout the application process, meaning you’ll owe even more if you can’t cut a deal with the IRS.
What To Do If Your Application Is Rejected
Not everyone who applies for an OIC will be given the green light. Historically, the IRS approves about 40% of the OIC applications it receives each year.
If your case is denied, there are still steps you can take. You can try calling the IRS employee who signed the denial and convincing them to hear your case again. You can also file a formal appeal within 30 days of receiving the rejection letter.
The process of filing an OIC can be daunting, so be sure to get in touch with a seasoned tax professional who will help you every step of the way.
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When you owe back taxes, the IRS offers several options other than full payment. These include payment plans, extensions to pay, and hardship programs, such as not-collectible status and a tax settlement option called an Offer in Compromise. We will evaluate each option with you and get you the best option based on your circumstances.
Absolutely. Our tax resolution experts review your notice, assess your situation and work with you on a plan to resolve your situation. Once you engage us for services, we get right to work with you and the IRS. Our tax resolution specialists stick with you from beginning to end.
Each person’s circumstances are different. Our goal is to get you the best outcome available based on your circumstances. If you owe back taxes, we will review your unique situation for any potential relief.
