The Internal Revenue Service (IRS) is known for being tough when it comes to tax collection. In fact, the agency has a reputation for being unyielding when it comes to offer in compromise (OIC). Many taxpayers believe that it is impossible to settle their tax debt with the IRS through an OIC agreement.
The process of reaching an offer in compromise with the IRS can be grueling, but there are methods to increase your chances of success. By understanding the process and working with a qualified professional, you may be able to reach a resolution with the agency. By understanding the process and working with a qualified professional, you may be able to reach a resolution with the agency.
What Does An OIC (Offer in Compromise) Mean?
An offer in compromise allows a taxpayer to settle their IRS tax debt for an amount that’s less than what they owe. The offer in compromise program is designed to give taxpayers who are unable to pay their full tax liability a chance to settle their debt.
OICs are not for everyone and they are not easy to get. The IRS accepts less than 20% of all offers in compromise that are submitted. To have your offer accepted, you must demonstrate that the IRS is unlikely to collect the full amount of taxes owed if they pursued all legal means of collection.
There Are Three Types Of Offers In Compromise:
1. Doubt As To Collectibility:
You offer to pay the IRS an amount that you can afford based on your current income and assets.
2. Effective Tax Administration:
Though you legally owe the money, paying it back would cause difficulty or be unreasonable given your current situation.
3. Doubt As To Liability:
You do not believe you owe the full amount of taxes that the IRS says you owe.
The offer in compromise process can be long and complicated. The IRS requires a non-refundable application fee of $205.
Who Is Eligible For An IRS Offer In Compromise?
To Be Eligible For An Offer In Compromise, You Must:
- Prove that you cannot pay your full tax liability
- Have filed all required tax returns
- Make sure to pay all the estimated taxes you owe for the present year
- Have made all required federal tax deposits for the current quarter if you are a business owner with employees
What Are The Requirements For An Offer In Compromise?
The requirements for an offer in compromise are:
- You must submit a completed Form 433-A (OIC) or Form 433-B (OIC).
- You must submit a non-refundable application fee of $205.
- You must agree to make all required tax payments and file all required tax returns for the duration of the offer in compromise process.
- You must also file Form 656-L.
Why Is Your Application For An Offer In Compromise Rejected?
The most common reason for rejection is that the taxpayer did not submit all required documentation. The IRS will also reject an OIC if the taxpayer:
- Initial offer submitted is too low for the IRS, and they believe you have the ability to pay more.
- Failed to make required tax payments.
- Failed to file required tax returns.
- Did not provide complete financial information.
How To Make An Appeal To IRS If Your Offer In Compromise Is Rejected?
If your offer in compromise is rejected, you have the right to appeal the decision. The appeal process can be lengthy, so it’s important to work with a qualified tax professional to ensure that you have a strong case.
Appealing an offer in compromise decision can be done by filing Form 13711 (Appeal of Offer in Compromise). The form must be filed within 30 days of the date on the rejection letter.
Once the appeal is filed, you will have a meeting with an IRS Appeals Officer. It’s important to be prepared for this meeting and to bring all relevant documentation.
To appeal to the IRS if you don’t want to fill out Form 13711, send them a letter including your intention to appeal and the following information:
- Essential contact information (including name, address, and phone number).
- Social Security Number (SSN).
- A hard copy of the rejection letter sent by the IRS.
- A list of the tax years for which you owe taxes.
- The reasons you think the rejection is unjust.
- Supported documents for your disagreement.
What Happens If Your Offer In Compromise Is Accepted?
An Offer in Compromise (OIC) requires a lot of time and effort to get accepted, but it’s worth if you can follow the offer terms and avoid anything that could make your OIC go into default.
Process Your Payments
OICs can be paid either in lump sums or periodically. If you choose the lump-sum option, you will have up to 5 payments within a span of 5 months.
The payment plan will be set up for a maximum of 24 months. You must complete all payments on time and in full to avoid defaulting, which would mean that you owe the entire amount of your tax debt, minus any payments made.
File Your Tax Returns
When you pay off your OIC using the program, that’s not the end—it’s only the beginning. You’re required to stay in tax compliance for five years after receiving help from the OIC program.
Remember, you have to submit all of your returns on time and make the proper tax payments for the next five years. If you don’t file a return or make an estimated tax payment, defaulting can happen – even if you’ve already made all OIC payments.
If you are expecting a tax refund, keep in mind that it may be offset if your OIC is accepted.
Settle All Of Your Tax Issues
Another issue that may arise after your OIC has been accepted is if you don’t pay the taxes owed for tax years not included in your original offer.
An OIC is more likely to be accepted if you have filed all of your tax returns. The IRS will catch an unfiled return eventually, which could lead to your offer being rejected. If the IRS adjusts your return, they may also assess taxes for a prior year.
By engaging in the filing of all required returns and ensuring that your old tax debt is included as part of your offer, you can avoid this issue. You certainly don’t want any unwanted surprises after going through the process of getting an OIC accepted.
Conclusion:
The Offer in Compromise program can be a great way to get out of tax debt, but it’s not easy. The application process is long and complex, and there’s no guarantee that your offer will be accepted. Ideal Tax Solution can help you navigate the process and give you the best chance of success. We have years of experience helping clients with their taxes, and we can help you every step of the way – from preparing your application to negotiating with the IRS.
