Offer in Compromise to Negotiate IRS Tax Debt
Cases areas handled by our tax lawyers
You might not be aware that the IRS offers an offer-in-compromise option for taxpayers who have been incorrectly assessed or whose total tax liability exceeds their ability to pay. This program enables customers to settle their taxes for less than the amount they owe.
Eligibility is based on your specific circumstances, such as your:
- Asset equity
- Ability to pay
An offer in compromise is generally accepted when the sum an individual offers represent the maximum the IRS may expect to recoup within a reasonable amount of time. This program is not open to everyone, and it entails a lengthy application procedure. It’s strongly suggested that you retain the services of an experienced tax attorney throughout every stage of the process, ensuring that no mistakes are made and that you have the best chance of having your offer accepted.
What is offer in compromise?
An offer in compromise (OIC) is a settlement between a taxpayer and the IRS in which their tax liability is reduced to below the full amount. If you can make installment payments to pay off your tax debt, you won’t qualify. You must prove that you’re unable to make full payment and that the amount you offer is the most the IRS can reasonably expect to collect from you.
OICs are used as a means of collecting what is owed while also providing relief to taxpayers who cannot afford to pay their tax debt in full. The program is designed for those who have a genuine financial hardship and are unable to pay their tax liability over time through an installment agreement or other means.
The three types of offers in compromises are:
Doubt as to Collectability – You offer an amount that you can pay now and the IRS agrees that this is all they can reasonably expect to collect from you.
Effective Tax Administration – There are extenuating circumstances that prevent you from paying your taxes, such as a natural disaster.
Doubt as to Liability – You don’t believe you owe all or part of the taxes in question.
To qualify for a doubt as to collectibility offer (the most common), a taxpayer must have:
- Filed all tax returns
- Made all required estimated tax payments for the current year
- If they are a business owner they have made all required federal tax deposits for the quarter
- If the amount offered by the taxpayer is equivalent or greater than their reasonable collection potential (RCP), the IRS may accept an offer in compromise. RCP is how they determine whether or not a taxpayer can pay. It covers things like:
- Real Property
- Bank Accounts
- Owned Property
- Future Income
If you’re looking for a tax lawyer Damiens Law Firm, PLLC is the firm to call. Our knowledgeable tax professionals at Damiens Law Firm, PLLC can help you determine if an offer in compromise is right for you or if a tax payment plan is preferable. We can provide sound advice about your circumstances because of our expertise in tax law.
Is an offer in compromise a good idea?
Any taxpayer who owes the IRS more than they can realistically pay off within a few months may be feeling overwhelmed and hopeless. They may have already fallen behind on their payments and be facing wage garnishment, levies, or even seizure of their assets. This is where an offer in compromise (OIC) comes in.
An OIC is an agreement between the taxpayer and the IRS that settles the taxpayer’s IRS tax liability for less than the full tax liability. It is important to note that not everyone qualifies for an OIC – the IRS will consider a number of factors, including the taxpayer’s income, expenses, and ability to pay, before making a decision. However, for those who do qualify, an OIC can provide much-needed relief from a crushing tax bill. By negotiating an OIC, the taxpayer can resolve their liability without having to declare bankruptcy or liquidate their assets.
Additionally, an OIC can help to avoid further penalties and interest from accruing on the outstanding tax bill. For taxpayers struggling to make ends meet, an offer in compromise may be the best way to get back on track and avoid economic hardship.
How to apply for the Offer In Compromise Program?
The IRS offers a variety of payment options for taxpayers who owe back taxes, but one of the most popular choices is an offer in compromise (OIC). The process of applying for an OIC can be complex, but it is well worth the effort for those who qualify. Here are four steps to help you get started:
- Determine your eligibility. The first step is to determine whether you meet the criteria for an OIC. The IRS will consider factors such as your income, assets, and ability to pay before making a decision.
- Gather your financial information. Once you have determined that you are eligible for an OIC, you will need to gather all of your financial information, including tax returns, bank statements, and pay stubs. This information will be used to determine how much you can afford to pay and included on your collection information statement to the IRS.
- The next step is to submit your offer in compromise application along with all of the required supporting documentation.
- Negotiate with the IRS. The final step is to negotiate with the IRS in order to reach an agreement on the amount you will pay on the tax bill. Be prepared to compromise in order to reach a settlement that is acceptable to both parties.
Who qualifies for an IRS offer in compromise?
The offer process is complicated because it involves two hurdles: eligibility and approval from the IRS. First, the taxpayer must prove that they qualify for an offer in compromise. The IRS will consider factors such as the taxpayer’s ability to pay, income, and expenses before making a decision. If the taxpayer does not meet the criteria for an offer in compromise, their application will be rejected. Even if the taxpayer does qualify, there is no guarantee that their offer will be accepted. The IRS will evaluate the taxpayer’s financial information and make a decision based on what they believe the taxpayer can realistically pay.
How long does an offer in compromise take?
Offer / Term Time may vary depending on your personal circumstances but is typically 4 to 9 months. The sooner the IRS is able to determine whether it can accept the Compromise Offer, the greater the chances of it being accepted.
How the IRS decides whether to accept an offer in compromise
The IRS calculates the amount it believes can be collected from an individual now and in the future. The Internal Revenue Service uses information about taxable income to calculate RCPs such as future income (See, IRS Allowable Living Expenses). The IRS will accept the offer if there is a difference between the RCP and the amount of money you offer. If there is a legitimate legal dispute as to whether your tax liability really exists, then you will need to review the qualifications for doubt as to liability offer in compromise.
Tell me the acceptance rate.
The IRS publishes data on the number of offers it accepts and rejects each year. For example, in 2018, the IRS accepted 19,718 offers out of 62,135 offers submitted. This represents an acceptance rate of 31.8%.
How much should I offer? Minimum offer amount and reasonable collection potential
The minimum amount you should offer depends on what kind of offer or payment option the IRS accepts. The IRS will review your income potential as well as your net realizable equity in assets in determining your offer’s viability.
Net realizable equity in assets
The net realizable equity on assets is calculated from the fair market price of the property multiplied by the discount factor or 80%. The balance of the loan backed by the property should also be taken into account. Net realizable asset value varies according to the type of asset in question.
For example, if your car is worth $5,000 and you owe $3,000, your net realizable equity would be $2,000. If you’re able to offer this amount or more, the IRS may accept your offer.
Options for rejected offers
If your offer is rejected, it may be due to an error by IRS staff or other reasons. There are two options when a taxpayer’s OIC is denied. The first is to file an appeal within 30 days of the date on the Notice of Disallowance. The second option is to submit a new offer with a higher payment.