IRS Tax Compromises
Offers in Compromise
An offer in compromise (OIC) allows you to settle your tax debt for less than the full sum of taxes, interest, and penalties you owe. You must meet certain requirements and conditions in order to qualify. An experienced tax practitioner can guide you through this process.
Section 7122 of the Internal Revenue Code authorizes the IRS to enter into OICs. The IRS will evaluate your offer based upon four common factors: (1) ability to pay; (2) income; (3) expenses; and, (4) equity in assets. Forms 433-A (individuals) and 433-B (businesses) assist the IRS in making a determination as to whether you will be approved for an OIC. Extreme care must be used in the preparation of these forms. To avoid having your offer rejected or returned, you must complete these forms thoroughly and accurately. You must have a complete understanding of how your offer is evaluated by the IRS using allowable National and Local Standards for expenses. An experienced tax practitioner can guide you through this process.
To be eligible for the OIC program, you must be current in filing all required returns. This does not mean that the tax liability must be paid as that is the purpose for the OIC, to compromise the amount that you have to pay to the IRS. It just means that the IRS must have the tax returns signed by you reflecting the amount that you owe in taxes based upon the income and deductions for the particular tax year. Once the returns are filed, the IRS will make an assessment of the full sum of tax, interest, and penalties, if any, you owe for the tax year. This assessed amount is the sum that the OIC will seek to reduce. Also, to be eligible for the program, you can not be in an open bankruptcy proceeding.
Submitting an OIC may be a good option if you can’t pay your full tax liability, or doing so creates a financial hardship. Upon submission of your offer, the IRS will generally stop most collection efforts, such as placing a levy on your bank account or a levy on your wages, provided that, the offer is submitted before the levy is served. If the levy was served prior to the submission of your offer, then there may be other ways to obtain a release of the levy. A federal tax lien may be filed while the IRS is considering your offer, however, many times the IRS will wait until a final decision has been made on your offer.
You have two payment options available upon submission of your offer. The first option requires 20% of the total offer amount to be paid with the submission of your offer with the remaining balance paid in 5 or fewer payments within 5 or fewer months of the date your offer is accepted. The second option requires the first payment to be paid with the offer and the remaining balance paid in monthly payments within 6 to 24 months. Under this second option, you must make monthly payments while the IRS is evaluating your offer. If you are an individual and meet the Low-Income Certification guidelines, you will not be required to send the initial payment or make the required monthly payments while your offer is being considered.
The IRS will generally approve an OIC when the amount offered represents the most it can expect to collect within a reasonable period of time. An OIC will more than likely not be approved if you can pay your tax debt in full or through an installment agreement and/or equity in assets. Sometimes there are special circumstances that may overcome the bar imposed by these particular facts. It is paramount to have an experienced tax practitioner guide you through the OIC program. Many TV and radio commercials make the process sound so easy and imply that all persons are eligible for the program. Be cautious as many taxpayers have been taken advantage of by these companies; having paid thousands of dollars for absolutely no relief. There are no guarantees with the OIC program, but an experienced tax practitioner can evaluate your eligibility in a relatively short period of time without charging you enormous amounts of money to later find that you are not a good candidate for the OIC program.
Our Services Include:
- Offers in Compromise
- Installment Agreements