An Offer in Compromise (OIC) is an option when dealing with back taxes owed to the IRS. Though the IRS has no obligation to accept an OIC, they sometimes do and can settle your tax debt for less than what you originally owed.
However, it is not always advisable to pursue an Offer in Compromise. After it’s submitted, your options are limited, but there are other ways to help eliminate tax debt.
An Offer in Compromise is one of the few ways you can reach an agreement with the IRS to forgive some, or all, of your tax debt. It is a legitimate option for taxpayers in certain situations, and not advisable in other circumstances.
According to the IRS, every OIC they receive is examined according to these criteria:
● Ability to pay
● Income
● Expenses
● Asset equity
To qualify for an Offer in Compromise, you must not have missed filing any returns in the past. In addition, any missed required estimated payments to the IRS can disqualify you.
You are required to submit an offer to the agency which involves completing Form 443-A or 433-B for businesses. You may also file a Form 656 for individual or business tax debt. There is also a $186 application fee that is non-refundable.
The IRS may reject your offer. They also might follow up with proposed terms to a settlement which you are not required to accept.
Before you submit an Offer in Compromise (OIC), or after an offer is submitted and declined, you do have the opportunity to settle tax debt in other ways. Here are some of them.
An installment agreement is a terrific option for people whether or not they qualify for an OIC. It provides a manageable way to pay tax debt off over time.
Installment agreements are comparable to any other loan you may have with a credit card company or bank. You pay a monthly balance to the IRS. Taxpayers usually can determine how much they can afford each month. However, an installment agreement does include interest, so the longer you take to pay it off, the more you ultimately pay.
Those who owe less than $50,000 to the IRS qualify for streamlined agreements that grant you six years to pay off the debt plus interest. Payments are automatically deducted each month from a bank account.
The only restriction on entering an installment agreement with the IRS is if you have failed to file a previous tax return(s) or are currently in open bankruptcy.
Even though it is a short term option, many elect to settle back taxes through a payment extension instead of agreeing to a long-term installment agreement.
A payment extension simply grants you an additional four months to settle the tax debt. However, if the account is already in collections, the extension may only provide an additional 60 days.
It is a terrific option if the tax debt is within reason and you are in good standing with the IRS.
Are you having trouble finding ways to pay off tax debt even with options like an installment agreement?
If so, you may want to consider the “currently not collectible status”.
Currently not collectible status (CNC) is most often granted to taxpayers who currently owe back taxes yet have “actual hardships” and are reasonably unable to settle the debt.
CNC status can also get awarded to a taxpayer who “cannot be located”, or who perished and the surviving members of the family would like to prevent the potential for collection from the decedent or estate.
The status means that all collection activity on the account is halted until further notice. It means wage garnishments or levies placed on a taxpayer’s assets are temporarily relieved.
The Offer in Compromise (OIC) Program is not for everyone. First, the eligibility requirements are strict. Secondly, the odds of a favorable outcome are not extremely high.
Levy & Associates has spent decades working with clients who need tax resolution services. We can examine your circumstances and determine which tax resolution solution is the best for you. Call us today for an initial free consultation at 800-TAX-LEVY, or visit www.www.levytaxhelp.com.
Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.
There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.