Offer In Compromise
What Is An Offer In Compromise?
If you owe large amounts of money to the IRS in tax bills, you might be wishing you could just pay what you can, leave that stress behind you, and move on with your life. In some cases, this is possible. For those that qualify, the IRS sometimes accepts an Offer in Compromise, also referred to as an offer or OIC. An OIC allows you to have your tax bill significantly reduced so that you can pay it off without going broke. The IRS Code states: “We will accept an Offer in Compromise when it is unlikely that we can collect the full amount owed and the amount you offer reasonably reflects the collection potential…” (Internal Revenue Code section 7122). While the IRS does give a properly submitted OIC fair consideration, they have no legal obligation to grant taxpayers an OIC. It is completely at their discretion, meaning they decide whether or not they want to accept an OIC.
Who Can Use An Offer In Compromise?
There are some strict eligibility requirements that you must meet to be eligible for an Offer in Compromise.
No Pending Bankruptcy
You will not be able to submit an Offer in Compromise if you are currently in an open bankruptcy. If you are, you will be required to address any tax debts within your bankruptcy proceeding.
No Late Tax Deposits
For business owners, you must be up-to-date with the current and previous two quarters for your payroll tax deposits. Otherwise, you will not be eligible.
No Missing Tax Returns
If you have failed to file any of the federal tax returns that you were required to file, the IRS will not allow an Offer in Compromise. Therefore you must still file your tax returns regardless of your ability to pay.
No Pending Department of Justice Investigations
You will not be able to submit an Offer in Compromise if the IRS has sent your case to the Department of Justice for potential charges related to tax crimes.
Doubt As To Collectibility
Your chances of having your OIC accepted are higher if there is a great amount of doubt from the IRS that they can collect the entire tax bill from you.
If paying your tax bill in full would cause you economic hardship or would be “inequitable.”
Use An Offer In Compromise To Settle A Tax Bill
Submitting an OIC is a formal process that must be done with care. When completed and submitted properly, you may be able to settle your tax bill for 5-15% of what you currently owe. It is crucial to determine the least amount that will be accepted by the IRS prior to making an official offer.