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How to Qualify for an Offer in Compromise

how to qualify for an IRS offer in compromise

If you have an outstanding tax debt with the Internal Revenue Service (IRS) but you’re concerned that you are unable to pay it, you may have the option to settle the debt for an amount lower than what you owe. The IRS provides a solution called an Offer in Compromise (OIC) that allows qualifying taxpayers to enter an agreement to pay off their tax liability. An attorney who specializes in tax debt relief can assist you with applying for this tax debt relief program.

The guidelines for qualifying for an Offer in Compromise are somewhat strict but certainly straightforward. First, your reasons for applying must be one of the following:

  • Doubt as to Liability – If the IRS has reason to believe that the amount of your tax debt is incorrect, this would be considered doubt as to liability.
  • Doubt as to Collectibility – When the IRS doubts that it would be able to collect the full amount of the taxpayer’s debt, it may accept an Offer in Compromise. This is often the case if the amount of the taxpayer’s income and assets is lower than the amount of the liability.
  • Effective Tax Administration – The IRS may also accept an Offer in Compromise if paying the tax debt would create a financial hardship for the taxpayer or if collecting the tax debt would be unfair or inequitable.

Aside from having one of these reasons for submitting an Offer in Compromise, there are a few additional eligibility requirements.

  • All federal tax returns must be filed. Even if your tax returns show that you owe additional taxes and you are unable to pay them, those returns must still be filed before the IRS will consider an Offer in Compromise.
  • You must not be involved in any bankruptcy proceedings. If you are going through the process of filing bankruptcy, you will not be able to apply for an Offer in Compromise. Your tax debts will instead be considered as part of the bankruptcy.
  • A business must have all tax deposits paid. In order for a business to be eligible for an Offer in Compromise, the quarterly tax deposits must be up to date.

If you believe that you are eligible to reduce your tax debt based on these requirements, a tax debt resolution attorney can guide you through the application process. There are several IRS tax forms that will need to be completed and submitted, and your finances will be subject to review. There is also an application fee that must be paid, although low-income taxpayers may be able to get this fee waived. You should expect the entire process to be quite time-consuming, although the IRS is required to deliver a response to your offer within a specific timeframe.

As your Offer in Compromise is being considered, collection efforts from the IRS will be put on hold. Payments associated with your offer will be applied to your tax liability including any non-refundable payments made during this time. If your OIC is approved, you will be required to adhere to the terms of the offer or else you will be considered in default. If, however, your OIC is rejected, you do have the option to appeal the decision. A tax debt relief attorney can also assist you with the appeals process. Remember that your appeal will need to be filed within 30 days of the rejection.

Contact an Attorney

There are no guarantees that an Offer in Compromise will be accepted, but at Ayar Law, our goal is to do whatever we can to improve your chances. We know just how stressful having a tax debt hanging over your head can be and we are here to help. That’s why we offer free, no-obligation tax advice to help you with your situation. Simply give us a call at 800.571.7175 today.

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.