Should I Choose Offer in Compromise or CNC Status?

These programs offer different solutions to taxpayers struggling with their tax obligations. Here, we’ll delve into the differences between OIC and CNC, helping you make an informed decision about which option is right for your unique financial circumstances.

Understanding Offer in Compromise (OIC)

An Offer in Compromise is a program offered by the IRS that allows eligible taxpayers to settle their tax debt for less than the full amount owed. Here’s what you need to know about OIC:

1. Eligibility Criteria

To qualify for an OIC, you must meet specific eligibility criteria. These include demonstrating:

• Adequate tax compliance, which means being up to date with all tax filings.
• A substantial tax debt, as the IRS will assess your income, expenses, asset equity, and future earning potential to determine eligibility.
• A demonstrated financial hardship, proving that paying your tax debt in full would cause undue financial strain.

2. Preparing Your Offer

Preparing your Offer in Compromise involves:

• Determining an appropriate offer amount based on your financial situation.
• Completing the required IRS forms, including Form 656, which discloses your financial information and offer details, and Form 433-A (OIC) or Form 433-B (OIC) depending on your situation.
• Submitting your application with all the necessary supporting documentation and paying the associated application fee.

3. Evaluation and Approval

After submitting your OIC application, the IRS will review it to ensure completeness and accuracy. They’ll evaluate your financial situation and your ability to pay. Negotiations may occur to determine an acceptable settlement amount. If your OIC is approved, you can choose between a lump sum or periodic payment offer to settle your debt.

Currently Not Collectible (CNC) Status

Currently Not Collectible status is another option for individuals or businesses facing financial hardship and struggling with their tax debt. Here’s what you need to know about CNC status:

1. Eligibility Criteria

CNC status is typically available to those who can prove that paying their tax debt would result in significant financial hardship. Eligibility is based on:

• Demonstrating an inability to meet basic living expenses while satisfying your tax obligation.
• Providing evidence that your income is insufficient to cover both your necessary expenses and your tax debt.

2.  Application Process

The CNC application process involves:

• Contacting the IRS to request CNC status and explaining your financial hardship.
• Providing the IRS with a detailed financial statement that outlines your income, expenses, and assets.
• The IRS will evaluate your financial statement to determine if you qualify for CNC status.

3. Benefits of CNC Status

If you are granted CNC status, the IRS will temporarily suspend collection efforts. This means:

• The IRS will not seize your assets.
• They will halt wage garnishment.
• Your bank accounts will not be levied.
• You will be granted a temporary reprieve from making payments on your tax debt.

Choosing Between OIC and CNC Status

Now that you have a better understanding of both OIC and CNC status, let’s explore some key considerations to help you decide which option is more suitable for your specific situation:

1. Financial Situation

• If you have some available income or assets, and it’s possible to pay a reduced amount of your tax debt, an Offer in Compromise may be the better option. OIC allows you to settle your debt for less than the full amount owed.
• On the other hand, if you genuinely cannot afford to make any payments toward your tax debt due to financial hardship, pursuing Currently Not Collectible status may be a more appropriate choice.

2. Long-Term Financial Projections

• Consider your future earning potential. If you anticipate an improvement in your financial situation in the coming years, you may find an OIC a better fit, as it allows you to make reduced payments over time.
• If your financial hardship is expected to be prolonged or permanent, CNC status provides temporary relief and allows you to address your tax debt when your financial situation improves.

3. Documentation and Application Process

• The application process for both OIC and CNC status can be complex and requires detailed financial documentation. It’s crucial to be well-prepared and provide accurate information.
• For an Offer in Compromise, you must be diligent in determining an appropriate offer amount and filling out the required IRS forms. Any errors or omissions can lead to the rejection of your OIC application.

• Currently Not Collectible status may have a slightly less stringent application process, but it still requires a well-documented financial statement to support your claim of financial hardship.

4. Professional Guidance

• Seeking professional guidance, such as a tax attorney or CPA, can significantly improve your chances of success with both OIC and CNC status applications.
• A tax professional can help you navigate the complexities of the application process, ensure your documentation is accurate and complete, and represent your interests during negotiations with the IRS.

Conclusion

Choosing between Offer in Compromise (OIC) and Currently Not Collectible (CNC) status is a critical decision for anyone struggling with tax debt. Your choice should align with your unique financial circumstances, future prospects, and ability to make payments. It’s essential to consider both options carefully and, in many cases, consult with a tax professional to make the best decision for your situation. Whether you opt for an OIC or CNC status, both programs offer potential relief and a pathway to resolving your tax debt challenges.