IRS OFFER IN COMPROMISE

An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service to resolve tax debts for less than the total amount owing. This is excellent news. The bad news is that not everyone can utilize this option to settle tax debt; the IRS denied roughly 60 percent of compromise proposals submitted by taxpayers. Whether you owe money to the IRS and are unsure if an IRS offer in compromise is the solution, read on.

Who qualifies?

If you cannot pay the whole amount of your tax due, or if doing so would cause you financial hardship, an offer in compromise may be a valid choice. Before filing an offer in compromise to the IRS, taxpayers should investigate all other payment choices. In general, taxpayers who can satisfy their tax obligations via an installment plan or other methods do not qualify for an OIC.

To be eligible for an OIC, a taxpayer must possess:

Completed all tax filings

Paid all expected tax payments necessary for the current year.

If the taxpayer is a company owner with workers for the current quarter, they have made all necessary federal tax contributions.

IRS Acceptance Criteria

Whether or not your offer in compromise is accepted depends on a number of factors; however, an offer in compromise is typically accepted when the amount offered represents the maximum amount the IRS can reasonably expect to collect within a reasonable period of time – known as the reasonable collection potential (RCP). In the majority of instances, the IRS will not accept an Offer in Compromise (OIC) unless the amount given by the taxpayer is equal to or more than the taxpayer’s reasonable collection potential (RCP). The RCP is how the IRS determines the taxpayer’s capacity to pay.

The RCP is the realizable value of the taxpayer’s assets, including real estate, vehicles, bank accounts, and other property. In addition to the property, the RCP consists of expected future income and fewer specific allowances for essential living expenditures.

The IRS may approve an OIC if one of the following conditions is met:

Questionable liability. Only where there is a real disagreement over the existence or amount of the proper tax liability under the law can an OIC fulfill this condition.

Questionable collectability This relates to whether there are reasonable doubts that the amount owing is completely collected, such as when the taxpayer’s assets and income are less than the total tax debt.

Effective tax management. This occurs where there is no question that the tax is lawfully owing and the entire amount owed may be collected, but demanding payment in full would cause economic hardship or be unjust and inequitable due to extraordinary circumstances.

Submissions and Fees

Use Form 656, Offer in Compromise, and Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, when obtaining an OIC from the IRS. Use Form 433-B (OIC), Collection Information Statement for Businesses, if filing as a company. A taxpayer who submits an OIC based on uncertainty over tax liabilities must additionally submit extra paperwork.

A nonrefundable application fee and a non-refundable first payment are required when filing an OIC. No application fee is necessary, however, if the OIC is based on liability uncertainty.

If the taxpayer is a person (not a business, partnership, or other organization) who fits the standards for Low-Income Certification, no application fee or first payment is required. They will not be required to make monthly payments while the IRS reviews a settlement offer.

The first payment is contingent upon the payment method you choose for your offer in compromise:

A lump sum of cash. Include a down payment equal to 20% of the total offer amount with your application. If your offer is accepted, formal confirmation will be sent. Any outstanding debt is paid in no more than five installments.

Periodic Payment. Include your deposit with your application. Continue making monthly payments on the outstanding sum while the IRS evaluates your offer. If approved, continue monthly payments until the balance is paid in full.

The IRS will tell you by letter if your OIC is rejected. The letter will explain why the IRS rejected the offer and give guidance on how to appeal the decision. If you want to appeal, you must do so within thirty days of the letter’s date.

Assistance Is Just a Phone Call Away

Contact the office for additional information about the IRS Offer in Compromise program if you have any questions.

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Glendale

Tetyana Ser-Manukyan | Glendale Location Manager

Tetyana is a 2nd generation accountant and the Founder of Integrity Accounting Solutions, Inc. She is a meticulously organized and detail-oriented professional with over 23 years of experience in accounting industry.

Long Beach

Marilyn Motsenbocker | Long Beach Location Manager

With more than 35 years of experience in accounting and finance, her managerial expertise and knowledge add value to our firm and complement the well-being of our customers.

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