Tax debt can be overwhelming, but there’s hope! The Internal Revenue Service (IRS) offers a program called Offer in Compromise (OIC) that allows taxpayers to settle their tax debt for less than the full amount owed. But how do I initiate an offer in compromise to the IRS? What are the steps involved? When you partner with Damiens Law Firm, PLLC, we’ll walk you through every aspect of the Offer in Compromise process, from understanding eligibility requirements to crafting your proposal and submitting your offer. Plus, we’ll explore alternative tax relief options, and how our team at Damiens Law Firm, PLLC can help you navigate this complex process.
Our tax debt attorneys understand the challenges associated with tax debt, and our commitment is to guide you through every step of the Offer in Compromise process. Take the first step toward financial relief by calling us at 601-488-2079 for a free consultation. Let our experienced team work diligently to help you achieve a favorable resolution with the IRS.
Understanding the Offer in Compromise Program
The IRS Offer in Compromise program is a lifeline for taxpayers struggling with tax debt. This program enables eligible individuals to resolve their tax debt, including required estimated tax payments, for a reduced amount. The eligibility criteria for participation in the Offer in Compromise program will be outlined in a letter sent to the taxpayer.
Before applying, understanding the program basics and eligibility requirements is important.
What is an Offer in Compromise?
An Offer in Compromise (OIC) is a tax resolution agreement between a taxpayer and the IRS that resolves the taxpayer’s tax debts for an amount less than the full amount owed. This option can bring significant relief to taxpayers, as it can prevent IRS collection actions, provide a chance to show economic hardship and eliminate IRS tax liability. The OIC program may be used to settle federal tax liabilities and, in certain cases, state tax liabilities.
To apply for an Offer in Compromise, taxpayers must complete the necessary forms and submit their proposal to the IRS, offering to pay a reduced amount of their tax debt. The IRS evaluates the offer considering the taxpayer’s finances, deciding to accept, reject, or return it. Providing accurate and detailed financial information is key for a proper assessment of your offer by the IRS.
To qualify for an Offer in Compromise, certain criteria must be met. Taxpayers must have filed all required tax returns, made estimated tax payments, and not be in an open bankruptcy proceeding. This is where Forms 433-A and 433-B come into play. Form 433-A is intended for wage-earners and the self-employed, while Form 433-B is for businesses.
Determining eligibility for an Offer in Compromise involves qualifying to apply and getting the IRS to accept your offer. The IRS offers an online tool called the Offer in Compromise Pre-Qualifier that can help you determine your eligibility. It’s essential to understand these eligibility requirements and ensure you meet them before initiating the Offer in Compromise process.
Initiating Your Offer: The Preliminary Steps
Assessing your financial situation and gathering necessary documents are critical initial steps before submitting an Offer in Compromise (OIC) to determine if this option suits you. Our experienced professionals at Damiens Law Firm, PLLC will meticulously evaluate your income, expenses, and asset equity to ascertain your eligibility for the OIC program. Through a detailed financial analysis, we aim to provide you with a clear understanding of whether pursuing an OIC is the most viable solution for your tax debt.
Getting Your Documents in Order
To submit an Offer in Compromise, you’ll need to provide information regarding your monthly income, assets, and other pertinent financial information. This includes completing and submitting IRS Forms 433-A and 656. An Offer in Compromise requires an application fee of $205. However, this fee can be waived if you are eligible under the IRS low-income guidelines.
Payment for your offer can be made by:
- Money order
- Credit card
It’s crucial to have all the necessary financial documents, including required federal tax deposits, in order to ensure a smooth application process and increase the likelihood of your offer being accepted by the IRS.
Assessing Your Financial Situation
Before submitting your Offer in Compromise, you need to:
- Evaluate your financial situation and consider your ability to pay the tax debt.
- Gather relevant financial data.
- Complete Form 433-A Collection Information Statement.
- Provide accurate and detailed information to the IRS for them to evaluate your offer.
Eligibility for an Offer in Compromise is determined considering your income, expenses, assets, and liabilities. Consulting a tax professional or utilizing IRS resources may provide further guidance. Your financial situation should be clear to you to decide if an Offer in Compromise fits you or if other tax relief options are more suitable.
Crafting Your Offer: How Much to Propose
Once you’ve assessed your financial situation and gathered the necessary documents, it’s time to craft your Offer in Compromise proposal. The crux of this process involves determining your Reasonable Collection Potential (RCP) and setting your offer amount accordingly.
Understanding Reasonable Collection Potential
The IRS calculates Reasonable Collection Potential (RCP) based on your financial information to determine the minimum amount they will accept in an Offer in Compromise. To calculate RCP, the IRS takes into account the value of your assets, including real property, automobiles, bank accounts, and other property, as well as your monthly disposable income.
Understanding your RCP is important as it forms the basis for your offer amount. The IRS uses the RCP to determine the minimum amount they will accept in an Offer in Compromise. Therefore, your proposed offer amount should be equal to or exceed your RCP to increase the chances of IRS acceptance.
Setting the Offer Amount
When submitting an IRS Offer in Compromise, you must include 20% of your offer amount. Additionally, an application fee must be included. This payment is nonrefundable, even if the offer is not accepted. The offer amount should be equal to or greater than the amount the IRS determines as collectible. Negotiations may occur to reach an agreeable amount for the OIC.
Keep in mind that the IRS will evaluate your offer based on your financial situation and the proposed offer amount. It’s essential to be realistic about your ability to pay and propose an amount that reflects your RCP. This will increase your chances of having your Offer in Compromise accepted.
Submitting the Offer: Forms and Fees
After crafting your Offer in Compromise proposal, you’re ready to submit the required forms and fees to the IRS. Our team at Damiens Law Firm, PLLC, will guide you through the precise completion of these forms and ensure that all necessary fees are handled in accordance with IRS guidelines, streamlining the submission process for a more efficient and effective resolution to your tax debt.
Required Forms for Submission
To submit an Offer in Compromise, you’ll need to complete and submit Forms 656, 433-A, and/or 433-B. These forms provide the IRS with information about your financial situation, your proposed offer amount, and any other relevant details. Be sure to carefully complete these forms, providing accurate and up-to-date information, as this can impact the IRS’s evaluation of your offer.
In addition to the forms, you’ll also need to submit the application fee of $205, which is nonrefundable. If you meet the low-income certification guidelines, this fee may be waived. Make sure to submit all required forms and fees to avoid any delays or complications in the evaluation process.
Understanding Payment Options
When submitting your Offer in Compromise, you have two payment options: lump sum cash offer and periodic payment offer. The lump sum cash offer requires an initial payment equal to 20% of the proposed amount, while the periodic payment offer requires the first installment payment. Both payment options require nonrefundable payments along with the application fee.
Ensure you understand the payment options and choose the one that suits your financial situation. Keep in mind that the initial payment is nonrefundable, even if your offer is not accepted by the IRS. By selecting the appropriate payment option, you can increase the likelihood of a successful Offer in Compromise submission.
After You Submit: What Happens Next?
Once you’ve submitted your Offer in Compromise, the IRS will review your application and investigate your financial situation, a critical phase where our team’s experience and skill ensure that your case is presented comprehensively, increasing the likelihood of a favorable outcome in your pursuit of tax debt relief.
IRS Review and Investigation
The IRS will review your Offer in Compromise and investigate your financial situation to determine if your offer is acceptable. This process typically takes 7 to 12 months. During the review, the IRS may request additional information or documentation to verify your financial standing. They will also assess your compliance history, including past tax filings and payment history.
Throughout the review process, the IRS will communicate with you, providing updates and requesting any necessary information. It’s crucial to stay engaged and responsive during this time, as the outcome of your Offer in Compromise depends on the accuracy and completeness of the information you provide.
After reviewing your Offer in Compromise, the IRS may accept, reject, or return your offer based on their evaluation of your financial situation and the proposed offer amount. If the IRS accepts your offer, it signifies that they have consented to settle your tax debt for an amount that is less than the total owed, allowing you to resolve your tax debt and potentially avoid additional collection activities by the IRS.
The IRS might reject your offer, giving you 30 days from the time you receive their rejection letter to appeal the decision. Sometimes, they may return your offer if it lacks specific criteria, such as missing necessary information or failing to include the required application fee or nonrefundable payment. Understanding the reasons for rejection helps in deciding whether to appeal or explore alternative tax relief options.
If Your Offer is Accepted
If the IRS accepts your Offer in Compromise, you’ll need to comply with the terms and conditions of the agreement, and our dedicated professionals will continue to support you, providing guidance to ensure successful adherence to the agreed-upon terms throughout the resolution process.
Compliance with the Offer Terms
Upon acceptance of your Offer in Compromise by the IRS, you must adhere to all tax laws, file all required returns, and pay all taxes for five years. This period is critical as failing to meet these requirements may lead to the termination of the agreement and reinstatement of the total tax debt.
It’s essential to stay vigilant during the compliance period and ensure that you’re fulfilling your obligations under the Offer in Compromise agreement. Doing so can successfully resolve your tax debt and avoid any potential issues with the IRS.
Consequences of Non-Compliance
Failure to comply with the terms of an accepted Offer in Compromise may result in the termination of the agreement and reinstatement of the full tax debt. This can be devastating for taxpayers who believe they have resolved their tax issues through the Offer in Compromise program.
If you struggle to meet the terms of your accepted Offer in Compromise, seeking professional help early is important. Tax professionals, such as our team at Damiens Law Firm, PLLC, can assist you in addressing any arising issues and help you stay compliant with your agreement.
Handling Rejections and Appeals
If the IRS rejects your Offer in Compromise, it’s essential to understand the reasons for rejection and the process for appealing a rejected offer, and our team at Damiens Law Firm, PLLC, will assist you in evaluating the grounds for rejection and navigating the subsequent steps to pursue an effective appeal.
Analyzing the Rejection Letter
Carefully reviewing the rejection letter from the IRS will help you determine the reasons for rejection and whether an appeal is warranted. The letter will contain a statement indicating the offer’s rejection, the reason for it, and appeal instructions.
Understanding the reasons for rejection can help you address and rectify any issues with your Offer in Compromise. It’s crucial to thoroughly review the reasons provided by the IRS and comprehend what went wrong to make any necessary changes before appealing the decision or resubmitting your offer.
The Appeals Process
If you decide to appeal a rejected Offer in Compromise, you must follow the instructions provided by the IRS and submit your appeal within 30 days. To file your appeal, you can complete Form 13711 (Request for Appeal of Offer in Compromise) or submit a written letter to the IRS containing the necessary information.
During the appeals process, the IRS will conduct an independent review of your case, separate from the initial evaluation by the Collection department. This is your opportunity to address any issues that led to the rejection and provide additional information or documentation to support your case. By understanding and following the appeals process, you can increase the likelihood of a successful outcome.
Additional Tax Relief Options
If an Offer in Compromise is not suitable for your situation, there are other tax relief options available. You can explore alternative solutions, such as installment plans and “Currently Not Collectible” status, to help you find the right option for resolving your tax debt.
Installment Plans and Their Benefits
An IRS installment plan is an agreement between a taxpayer and the IRS to pay their tax debt over a certain period of time through monthly installments. This payment plan allows for a more manageable way to pay off your tax debt instead of paying the full amount at once. The installment plan can help individuals and businesses unable to pay their tax liability in full, preventing more stringent collection actions by the IRS.
The advantages of an IRS installment plan include:
- The ability to control the amount of money paid each month
- Having extra time to pay the debt
- Avoiding garnishments, levies, or other collection measures
An installment plan may be a more suitable option for taxpayers who cannot qualify for an Offer in Compromise or require more time to pay off their tax debt with five or fewer payments.
Exploring “Currently Not Collectible” Status
“Currently Not Collectible” status is a temporary relief option where the IRS acknowledges that a taxpayer’s financial situation does not permit them to pay their taxes and cover their basic living expenses. During this period, the IRS will not pursue collection of the taxes, allowing the taxpayer some breathing room to address their financial situation.
To qualify for “Currently Not Collectible” status, you must demonstrate to the IRS that paying any amount towards your tax liability would cause you financial hardship. This status may be a viable option for taxpayers experiencing significant financial difficulties and unable to pay their IRS tax debt through an Offer in Compromise or installment plan.
How Damiens Law Firm, PLLC Can Help You
The Offer in Compromise program can be a powerful tool for taxpayers struggling with tax debt. By understanding the eligibility requirements, preparing your application, and navigating the complex submission process, you can increase your chances of a successful outcome. And remember, if an Offer in Compromise is not the right solution for your situation, there are other tax relief options available. With the help of experienced tax professionals like those at Damiens Law Firm, PLLC, you can find the right solution to resolve your tax debt and regain control of your financial future.
At Damiens Law Firm, PLLC, our seasoned tax attorneys can help you resolve your tax issues. Our services include:
- Submitting an Offer in Compromise
- Exploring other tax relief options
- Mediating between you and the tax authorities
- Arranging a payment plan if needed
- Negotiating to lessen your tax liability where possible
- Liaising with the IRS on your behalf during the tax resolution process
Our team is committed to helping you reach a tax settlement that fits your financial situation through effective tax administration.
Frequently Asked Questions
What is the downside to an offer in compromise for the IRS?
The downside to an offer in compromise for the IRS is that you may not qualify, as it is usually only available to those who have very few assets and are low-income earners. Moreover, there are limits to how much you can reduce what you owe.
What is the acceptance rate for the IRS offer in compromise?
The IRS offer in compromise acceptance rate for 2021 is 30.7%, 12.1% lower than the all-time high of 42.8% back in 2016. The average amount per offer in compromise accepted has increased by 31.83%.