What is an Offer in Compromise?
An Offer in Compromise (OIC) is a tax debt reduction plan that allows a taxpayer who owes back taxes to come to an agreement with the IRS. It settles tax debt for less than the full amount owed.
Qualifying for an Offer in Compromise
When you apply for an OIC you are required to submit full financial disclosure. You are required to tell the IRS everything about your financial situation, including:
The IRS evaluates how much money they can reasonably expect to collect from you. The IRS will only accept an OIC if they find the reduced amount is the maximum they can expect to get.
How an Offer in Compromise works
- Submitting an Offer in Compromise requires the completion of extensive paperwork, including a full financial disclosure.
- Given how complex these disclosures are and how thorough you need to be, it’s advisable that you retain a tax debt resolution company to help you apply – they can also advise you on the likelihood the OIC will be accepted.
- The IRS will complete their review of your finances, then settlement negotiation will begin; a tax debt resolution team can handle this step on your behalf.
- In general, the IRS will require the back tax settlement amount to be repaid within 2 years of making the agreement. Make sure you can pay the amount agreed within that time to avoid additional penalties.
3 IRS Offer in Compromise Tips
#1: OIC acceptance is more likely with assistance
The IRS only accepts a fraction of the Offer in Compromise requests they receive. Using a professional tax debt resolution service helps you complete the full financial disclosure correctly. They also know have knowledge of tax law and applicable tax codes to negotiate the settlement effectively.
#2: Only consider it if you truly can’t afford to pay
Submitting to a full financial disclosure means the IRS will know exactly where your income comes from, what accounts you have and what you own. In other words, they will know exactly where to garnish, levy and place liens if your offer is rejected.
Additionally, applying for an OIC when you are clearly not eligible can attract IRS penalties.
#3: Beware “Pennies on the dollar” tax settlement offers
Advertisements that claim they can guarantee to settle your tax debt for pennies on the dollar are almost always scams. The IRS is rarely so generous with their collection expectations and these companies may take money if fees and then leave you in an even worse situation with the IRS.