What is an Offer in Compromise(OIC)?
An "Offer in Compromise" is essentially a concord struck between an individual bearing tax obligations and the Internal Revenue Service, facilitating the resolution of the individual’s outstanding tax liabilities at a fraction of the total amount due. However, it’s important to understand that this option isn’t typically available to individuals who possess the capacity to fulfill their liabilities via a structured payment plan or alternative methods. Such individuals usually do not meet the qualifying criteria for the privilege of an offer in compromise proposal.
Top Reasons the IRS may accept an Offer In Compromise
These are the Top 3 Reasons the IRS Accepts a taxpayer's Offer in Compromise.
- First, the Internal Revenue Service might be inclined to accept a compromise, termed ‘doubt as to liability‘, under certain circumstances. This stipulation holds true exclusively in scenarios where there’s a legitimate contention regarding the validity or the precise sum of the rightful tax obligation as mandated by the law.
- Second, the IRS has the latitude to accept an OIC if there’s skepticism about the feasibility of total collection. This ‘doubt as to collectability’ comes into play when the taxpayer’s cumulative assets and income fall short of satisfying the total tax liability imposed.
- Third, the IRS possesses the authority to accept a compromise anchored in the principles of effective tax administration. This type of compromise could be deemed acceptable when there’s unequivocal certainty about the legality of the tax and the full collectability of the amount due. Nevertheless, insisting on full payment might precipitate an economic adversity or emerge as unjust and iniquitous due to extraordinary circumstances.
Prerequisites for a successful Offer in Compromise.
To unlock the opportunity to explore the possibility of an Offer in Compromise, certain prerequisites must be meticulously adhered to:
- Filing of all mandated tax declarations and the completion of all compulsory estimated contributions.
- Avoidance of any ongoing bankruptcy proceedings, as these constitute a disqualification factor.
- Acquisition of a legitimate extension for the tax return of the ongoing year – this is essential if your application corresponds to the current year.
- For those with employer status, the obligatory tax deposits for the present and prior two quarters must have been conducted in a timely manner before submitting an application.
Frequently Asked Questions: Offer In Compromise
What is an Offer in Compromise (OIC) and who qualifies for it?
An Offer in Compromise (OIC) is a deal made between a taxpayer and the Internal Revenue Service (IRS) that allows the taxpayer to settle their tax debt for less than the full amount they owe. However, it’s usually not an option for individuals who have the means to pay their debts through a structured payment plan or other methods. The IRS sets certain qualifying criteria to ensure this option is reserved for those who genuinely need it.
What are the top reasons the IRS might accept an Offer in Compromise?
There are three key reasons why the IRS may accept an OIC. Firstly, if there’s ‘doubt as to liability‘, meaning there is a genuine dispute about the correct tax amount due. Secondly, if there’s ‘doubt as to collectibility‘, indicating the taxpayer’s assets and income are insufficient to pay the full tax liability. Lastly, the IRS may accept an OIC under ‘effective tax administration’ when insisting on full payment could cause financial hardship or would be unjust due to special circumstances.
What are the prerequisites to apply for an Offer in Compromise?
There are a few conditions to meet before you can apply for an OIC. You need to have filed all required tax returns and made all required estimated tax payments. You can’t be in the middle of a bankruptcy proceeding. If your application is for the current tax year, you should have received a valid extension for your tax return. If you’re an employer, you must have made all necessary tax deposits for the current and past two quarters.
Can an OIC be granted to anyone under financial strain?
Not necessarily. The IRS looks closely at the applicant’s financial situation, including assets, income, ability to pay, and whether paying the full amount would cause financial hardship. Remember, the IRS typically does not offer this option to individuals who can meet their liabilities through other means, like a structured payment plan.
Can i qualify for an OIC in the middle of a bankruptcy proceeding?
If you are in the midst of a bankruptcy proceeding, you’re not eligible to apply for an Offer in Compromise. The IRS requires that these proceedings be completed or otherwise not ongoing in order to consider your OIC application. It’s recommended to consult with a tax advisor for guidance specific to your situation.
How long does it take for the IRS to process an offer in compromise?
The processing time for an offer in compromise (OIC) by the IRS varies based on individual circumstances and the complexity of the case. Typically, the IRS takes several months to review and process an offer in compromise application. During this period, they evaluate your financial situation, ability to pay, income, expenses, and asset equity to determine whether your offer amount represents the most they can reasonably expect to collect within a reasonable timeframe.
*Your offer is automatically accepted if the IRS doesn’t make a determination within two years of the IRS receipt date.
What happens if my offer in compromise is rejected?
If your offer in compromise is rejected, it means the IRS did not accept your proposed amount to settle your tax debt. You will still owe the full tax amount along with any penalties and interest. You can appeal the decision within 30 days using a specific form. If you had an existing payment plan, you’ll need to resume payments. Consider other payment options, as collection activities might restart. Accepted offers might have some information available for public review. It’s essential to consult a tax professional and follow IRS guidelines when dealing with offers in compromise.
What are the risks of filing an offer in compromise?
- Rejection Possibility: Your offer might be rejected if the IRS thinks your proposed amount is too low. You can appeal this decision.
- Privacy Concerns: Your financial details could become public if your offer is accepted. Some information may be accessible for public inspection.
- Tax Refund Delay: Any tax refunds you’re due might be used to pay off your debt, causing a delay in receiving those funds.
- Legal Consequences: Providing false information in your offer or to IRS staff can lead to penalties.
- Continued Tax Obligations: You’re still responsible for ongoing tax payments while your offer is being processed.
- Lien and Levy Considerations: The IRS might file a lien or keep levies in place during the offer process.
How much can I offer in compromise?
The amount you can offer in compromise (OIC) for settling a tax debt depends on your financial situation, including your income, expenses, assets, and the total amount you owe. The tax authority considers how much you can realistically pay. To start the process, you provide financial details and complete required forms. Not all offers are accepted, so it’s smart to get help from a tax professional like a CPA or tax attorney to navigate this process and improve your chances. Keep in mind that tax rules can change, so stay updated.