For some taxpayers, their tax debt is way more than they could ever afford to pay back. This is common for many people who have a very high profit year, don’t pay their taxes and then later when they are dealing with the tax problem, they don’t have as much money as they did before. An IRS Offer in Compromise (OIC) allows you to settle your tax debt for less than the full amount you owe. It is an agreement made between a taxpayer and the IRS to settle a tax debt for a certain amount of money. Offers are hard to qualify for and if the IRS believes you can pay back the taxes in full, they may reject any offer proposal you make. An offer is something to consider if you can’t pay the full tax liability or it would create a financial hardship for you if you tried. The IRS will look at your ability to pay, income, expenses, and asset equity to choose a plan based on what they can expect to collect in a reasonable period of time. There is a lot of misconceptions on the internet about OICs and how you can qualify so it’s important to make sure you understand what an OIC is and if you would need it.
Who Is Eligible for an OIC?
To qualify for an IRS offer in compromise, taxpayers must be current with all filing and payment requirements. This means, you must have filed all tax returns you are required to file. You must also be making all required estimated tax payments for the year and all required federal tax deposits if you are a business owner with employees. You can use the IRS’ pre-qualifier tool here to find out if you are eligible.
How Do You Submit an OIC?
When submitting an OIC, it helps to have a tax professional helping you. Tax attorneys can help negotiate with the IRS. When applying there are several items you must include in your application.
- Form 433-A/B
- Form 656 Offer in Compromise
- $186 application fee
- If you meet the Low-Income Certification, you will not have to pay this fee
- Initial Offer Payment
- If you meet the Low-Income Certification, you will not have to pay this fee
- This can either be a personal check, cashier’s check, or a money order
- You will either need to pay 20% of the offer amount or the first month’s payment for a periodic payment offer.
- You will need to write a separate check or have a separate money order for the application fee
- Once you have the two payments ready and the forms filled out, you must mail the application package to the appropriate IRS facility
What’s next?
When the IRS reviews your offer, they will either accept or reject it. They may ask for additional information regarding your expenses or your income, it is important that you reply to any requests or questions. If your offer does get rejected, you can appeal within 30 days using a Request for Appeal of Offer in Compromise, Form 13711 . If your offer is accepted, you must continue to file all required tax returns and pay all estimated tax payments on time. It is important to know that if you fail to file on time or pay any tax obligations on time within five years after your offer is accepted, your offer may default. If your offer defaults, you will be liable for the original tax debt along with the interest and penalties.
Currently, it takes the IRS anywhere from six months to one year for them to assign you an Offer Specialist and for that specialist to look at your application and either reject it or accept it. It is important to remember that it will take several months from the moment you send your application in to the moment you find out if it is accepted or not. The IRS is working to make the process faster, but some OIC applications are taking almost a year to be decided on.
Applying for an Offer in Compromise can be confusing and negotiating with the IRS is hard, so it’s important that you either have all your documents ready or you hire representation. Tax Attorneys like the ones at Polston Tax, file Offer in Compromises’ every week. Not only will they help you gather all your documents and fill out the required forms, they will also work with the IRS to get the lowest possible payment for you. If you have questions about if you qualify for an OIC or want help filing one, give us a call at 844-841-9857 or click here to schedule a free consultation.