What exactly is an offer in compromise, and how does it work? With an OIC, the IRS permits you to settle your tax debt for less than the total amount owed. You may have seen companies online claiming they can settle your tax debt for pennies on the dollar, but that’s a misleading claim since only a small percentage of taxpayers qualify for an OIC. To be eligible, you must show a legitimate reason for being unable to pay the entire amount of tax liability.
Once you submit an offer amount, the IRS decides whether it’s acceptable. If the IRS determines that you can pay your full tax bill, you may request an installment agreement. But what if you disagree with the IRS’s assessment of your ability to pay? You may provide additional information to support your claim and negotiate a lower amount based on the evidence you provide. To expedite the review of certain areas of dispute, you may qualify for Fast Track Mediation. However, Fast Track Mediation does not apply if you have already received a rejection letter.
So, how do you qualify for an offer in compromise? The taxpayer must have filed all required tax returns, made all required estimated payments, not be currently in open bankruptcy proceedings, and filed a valid extension request for the current year’s return if applying for the current tax year.
Given the complexity of the application process, it’s best to engage a tax professional to help you. This could be a qualified CPA, a tax advisor, an Enrolled Agent, or a tax attorney. However, if you choose to go it alone, you’ll use the IRS’s new Form 656 to apply for an OIC.
The IRS uses your financial information, including your bank accounts, real estate, motor vehicles, current income, and future income, to determine your Reasonable Collection Potential (RCP). If the IRS concludes that it will never fully collect your tax debt, it may accept your offer in compromise. If a true legal dispute exists regarding the tax debt or the full amount of income tax owed, it may grant an OIC. You may also prove eligible for an OIC if paying the full amount results in economic hardship. Exceptional circumstances could also make paying the tax bill in full unfair or inequitable.
But what if you don’t qualify for an OIC? The IRS may still deny your application for reasons such as a court-ordered tax debt, missing information, no bill for a tax debt included in the offer amount, or your case has already been sent to the Justice Department by the IRS.
The OIC process typically takes between seven and 12 months to complete, during which taxpayers are sending payments every month to the IRS. If your offer is accepted, you have two payment options based on your offer: lump sum cash or periodic payment. Keep in mind that during the offer process, the IRS may file a Notice of Federal Tax Lien, which is released if your offer amount is accepted and the entire amount is paid in full.
If you’re not eligible for the IRS offer in compromise program, there are other tax debt relief options available. Bench’s tax advisory services can assist you in applying for an offer in compromise or setting up a different tax payment option. To get started, find out about your eligibility for an OIC using the IRS pre-qualifying tool.
As a professional law firm with a deep understanding of the law, we want to emphasize the importance of considering all your options before deciding on an offer in compromise. It’s essential to seek the advice of a qualified tax professional to ensure you’re making the best decision for your unique circumstances.
We understand that dealing with tax debt can be overwhelming and emotional. That’s why we’re here to help guide you through the process and provide support every step of the way. Our team at SolveDebt is committed to helping you find the best possible solution to your tax debt, whether that be through an offer in compromise or another tax debt relief option.
So, what should you do next? Take the first step towards resolving your tax debt by contacting SolveDebt today. Our team of experienced professionals can provide you with the guidance and support you need to get back on track financially. We understand the stress and anxiety that come with tax debt, but we’re here to help you navigate the process and find a solution that works for you.
If you’re feeling overwhelmed by your tax debt, don’t wait any longer. Contact SolveDebt today and let us help you take the first step towards a debt-free future.