An IRS offer in compromise can do wonders for you, especially if you are struggling to make ends meet. Read on to learn more.
In this article:
- What Is an IRS Offer in Compromise?
- How Does It Work?
- Important Considerations for the Offer in Compromise IRS
- Frequently Asked Questions
IRS Offer in Compromise | Important Things to Know
What Is an IRS Offer in Compromise?
Most taxpayers aren’t aware that they may be able to pay a lower amount on their taxes than what the IRS initially requests. This is called an offer in compromise, and it’s more common than you would think.
An IRS Offer in Compromise (OIC) is an agreement between the taxpayer and the IRS to settle the tax debt for less than the amount owed. This situation can be resolved in a number of different ways on a number of different bases.
The following offers some helpful IRS Offer in Compromise tips for anyone unsure of how to navigate this process.
How Does It Work?
To make sense of this abstract tax issue, consider a more concrete example.
Let’s say that Emily owes the IRS $25,000 in back taxes that she can’t afford to pay back. She can make an offer in compromise by filling out an IRS Offer in Compromise form, which is IRS Form 656-B and Form 433-A. Emily must also remit the application fee and initial payment to the IRS.
The IRS will then evaluate the forms, along with Emily’s income, expenses, assets, and overall ability to pay. After evaluating all of these factors, the IRS will either accept or reject Emily’s offer in compromise.
If you’re concerned about how to get an offer in compromise approved, consider taking one of the following two most common approaches.
1. Pay 20% of the total offer amount with the application. If the IRS accepts the offer, the taxpayer will pay the remaining balance in five or fewer payments.
2. Make an initial payment with the application and then continue to make monthly payment while the IRS deliberates on the offer. If the IRS accepts the offer, the taxpayer will continue to make these monthly payments until the newly agreed-upon balance is fully paid off.
Important Considerations for the Offer in Compromise IRS
Keep in mind that if the IRS accepts Emily’s offer in compromise, to return to the previous example, she is legally obligated to adhere to the terms outlined in the agreement.
This includes filing all required tax returns, making all payments, applying current tax refunds to the existing tax debt, and requesting the release of any federal tax liens after completing the process.
This also means that Emily agrees to comply with all tax laws for at least five years.
Remember that the IRS has a maximum of two years to accept or reject Emily’s offer in compromise. If the IRS fails to make a decision after this time, the offer is automatically accepted.
In the event that the IRS rejects Emily’s offer in compromise, she can appeal the rejection within 30 days.
Related: What To Do When You Owe Back Taxes
Frequently Asked Questions
1. How do I know if I am eligible for an offer in compromise?
You can fill out an Offer in Compromise Pre-Qualifier Questionnaire available on the IRS website to determine whether or not you are eligible for an offer in compromise.
This questionnaire also includes a convenient IRS Offer in Compromise calculator to help users pin down approximately how much they will be expected to pay. With this IRS offer in compromise tool, you just need to input your financial information and calculate a preliminary offer amount.
However, the final decision will be based on a completed OIC application and investigation, so the offer in compromise calculator should only be used as a guide.
Partnerships, corporations, or those who reside in a U.S. territory, foreign county, or are military personnel using an APO or FPO address may not use the OIC Pre-Qualifier.
2. How likely is the IRS to accept my offer in compromise?
According to the Taxpayer Advocate Service 2017 Annual Report, 62,243 offer in compromise forms were submitted, but only 38.1% were accepted. This is somewhat lower than previous years, so taxpayers want to make sure to put their best foot forward with an OIC.
3. Do I qualify for low-income certification?
In order to qualify for low-income certification, the taxpayer’s gross monthly household income must be less than or equal to the amount featured in the chart on Form 656, section 1. This figure is based on family size and the taxpayer’s location.
Those who qualify may check the box, and will thus not have to make any payment while the IRS is considering the offer.
4. Can I file an offer if I am currently in bankruptcy?
No, the IRS will not consider any offers while there is an open bankruptcy case. You can file an offer only once this is discharged and closed.
5. What if my offer was accepted but I never received an acceptance letter?
The IRS keeps copies of all acceptance letters in the offer case file, which is held at the Federal Records Center. If you never received your acceptance letter, you can request a copy through the Freedom of Information Act by contacting your local IRS office.
6. Can I request an extension on offer payments after my offer has been accepted?
Taxpayers can request a one-time extension on an offer payment within a 24-month period, though all subsequent payments must be made in a timely manner.
To request an extension, contact the monitoring examiner.
7. What is an Offer in Compromise Doubt As To Liability (OIC DATL)?
The OIC DATL is used when a taxpayer believes the actual amount of tax requested is incorrect based on a provision in the IRS tax code. To make this claim, you would need supporting evidence and facts to build your case.
This offer is frequently used in lieu of an Audit Reconsideration simply because the IRS Offer in Compromise Unit has a superior tracking system and response rate.
The Offer in Compromise Doubt as to Collectibility (OIC DATC) is more common and is based on the taxpayer’s assertion that he or she does not have sufficient income or assets to pay the liability in full.
Requesting an offer in compromise from the IRS can be stressful and confusing, so it’s important to give yourself plenty of time to gather all the necessary information and carefully fill out the form. In some more complex cases, it might be necessary to consult a tax professional to increase your chances of getting your offer approved.
Have you ever taken advantage of IRS’ offer in compromise before? Did you have difficulties in the process? We’d love to learn from you in the comments section below.