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What is an IRS Offer in Compromise?

tax debt resolution

Some people leave their tax debt to continue adding up instead of finding an immediate solution to this problem.  Perhaps they think that by ignoring the problem, it will just go away.  Not the case.  In fact, ignoring the problem will only make it worse. One such solution is to find a tax attorney to help you negotiate for an offer in compromise (OIC) with the Internal Revenue Service (IRS).

OIC is one of the most underused and misunderstood tax relief programs provided by the IRS. So, here is everything that you would need to know about this program.

What is Offer in Compromise?

An OIC is a program that was developed by the IRS for taxpayers who can’t pay the taxes they owe or those who would fall into financial hardship if they paid the taxes they owe.

The offer allows you to settle your tax bill for less that want you owe the state. In 2017, the IRS accepted a total of 25,000 OIC out of 62,000, meaning that there is almost a 40% chance of your offer being accepted.

What Forms Do You Need to Submit?

The IRS requires you to complete form 433-A (433-B for companies) and form 656 to get the necessary information that it will use to access your eligibility. You will need to provide information about your income, living expenses, investments, and bank accounts.

Consider hiring a tax attorney who is experienced and qualified in the tax relief process before you provide the IRS with your financial details.

Why Would the IRS Accept Your Offer in Compromise?

The IRS might accept your offer based on these reasons:

  • The IRS can accept your offer if there is doubt of liability. That means there is a genuine dispute as to the amount or existence of the amount.
  • It also accepts the offer if there is a doubt on the collectability of the amount owed. In a nutshell, this means that your income and assets should be less than what you owe.
  • The IRS can also accept your offer according to the effective tax administration. This means that the amount owed is correct, and it can be collected, but collecting it in full can lead to economic hardship.

You must also fulfill the following conditions:

  • Update all your estimated tax payments (business and self-employed).
  • Update federal tax deposits (companies with workers).
  • File all required tax returns.
  • Not in an ongoing bankruptcy proceeding.

What Are Your Payment Options?

There are two payment options:

  • Lump sum cash offer – You can choose to pay the amount in full or installments. Lump sum offer requires you to pay the amount payable with a maximum of 5 installments and within 5 months after your offer is accepted. You are required to submit form 656 and include a nonrefundable amount equivalent to 20% of the payable amount.
  • Periodic payment offer – This offer is payable within 24 months, and it is payable in at least 6 installments. You should include the first installment when submitted form 656.

Conclusion

Not having enough money to pay taxes isn’t a crime, but hiding from the IRS is. You can always apply for an offer in compromise to ensure that you get a reasonable payment option. Hire a professional tax attorney to help you with the application process.

Contact an Attorney

If you need help with an Offer in Compromise, or just have tax questions in general, give us a call at Ayar Law for FREE no-obligation tax advic

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.