In this section you will get Offer in Compromise details beyond the OIC landing page. The IRS and most States have programs that allow a taxpayer to settle for an amount less than they owe if they demonstrate hardship and fall within the guidelines of the program. It is not unusual for someone owing hundreds of thousands for even millions of dollars to pay in the hundreds or low thousands to settle their debt.
In order to qualify for this program, you must be in current compliance and continue to remain in compliance for 5 years following acceptance of the offer. This means that all of your delinquent tax returns are filed and you are up to date on your current year estimated tax payments. Many people make the mistake of submitting an offer in compromise before they are ready. Others submit offers without knowing what the IRS will and will not allow as necessary and reasonable living expenses.
Mistakes such as these may result in having your offer rejected or having the offer amount increased to a number you no longer can afford to pay. As stated above, to have an offer in compromise approved, you must fall within the IRS’s or State’s guidelines. For this reason, the Tax Resolution Institute does not prepare Offers in Compromise on your behalf unless we are certain that your circumstances fall within the guidelines and more than not your offer will likely will be accepted.
Assessing Your Situation
Based upon our more than 25 years experience the Tax Resolution Institute knows (1) whether you will or will not qualify for an offer in compromise and (2) understands that even if you qualify, submitting an offer in compromise may not be the optimal solution.
Assuming you qualify and submitting an offer in compromise is the option that best serves you, the Tax Resolution will work closely with you to ensure that the offer amount is a low as possible and continue to work with you to stay on course ensuring that your offer acceptance is not overturned and your full liability gets reassessed within the 5-year compliance period…Read in detail about Offers in Compromise
Types of Offers
An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS that resolves the taxpayer’s debt for less than they owe. The IRS and most State have the authority to settle or “compromise” tax liabilities by accepting less than full payment under certain circumstances. A tax debt may be legally compromised under any of the following conditions:
Doubt as to Collectability – Doubt exists that the taxpayer would ever be able to pay the full amount of tax owed.
Doubt as to Liability – Doubt exists that the assessed tax is correct.
Effective Tax Administration – There is no doubt the assessed tax is correct, and there is no doubt that the full amount owed could be collected, but an extraordinary circumstance exists that allows the IRS to consider a taxpayer’s OIC. To be eligible for a compromise on this basis, the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable.
Taxpayers should be aware of false claims that their tax debts can be settled for “pennies on the dollar” through the Offer in Compromise Program. While this is true in some instances, it is imperative that they check the OIC requirements to verify if they qualify to submit an offer in compromise.
The ultimate goal of an Offer in Compromise is to settle, reduce and/or eliminate a tax liability that is in both the Government’s and the taxpayer’s best interest. The IRS will accept an offer-in-compromise to settle unpaid accounts for less than the amount owed when there is doubt that the liability can be collected in full and the amount you offer reasonably reflects collection potential. In addition to the forms necessary to file an Offer, we include a cover page that describes what forms and substantiation we have included in the package as well as a personal description of the taxpayer which provides the Offer Specialist a depiction that supports our case.
The IRS will also consider doubt as to liability and effective tax administration as acceptable platforms for abatement. The issue of “liability” is a complex legal issue (e.g., whether a person is a “responsible person” to pay the payroll taxes) requiring sophisticated and well-reasoned issues of fact and law.
To submit an offer-in-compromise you must complete Form 656. The IRS will not accept an offer unless it is clear that you have complied with all current filing requirements.
The IRS will not process an OIC for those working as employees unless all unfiled tax returns are filed, although it is not required that you make payment with the tax returns you file. This means that “employees” need to file all un-filed tax returns if you are considering eliminating your tax liability in an OIC. The IRS cannot settle a tax liability for which there is no tax assessment. Filed tax returns are important because they result in IRS tax assessments. Self-employed persons will be considered in compliance (for purposes of filing an OIC) if they file their quarterly tax returns “timely” (e.g. not late in making payment) for the current quarter and the preceding two quarters.
The Form 656 was redesigned in May of 2012 in order to assist taxpayer in the correct preparation of an OIC, as well as reduce the burden associated with the process. The 2012 revision is the culmination of a partnership effort involving the IRS, national Taxpayer Advocate, as well as a number of tax professional organizations.