How Much Should I Offer in Compromise to the IRS?

How Much Should I Offer in Compromise to the IRS? Let’s dig in.

If you cannot pay your tax debt, you can try to settle with the IRS for less than what you owe. If successful, a partial payment arrangement or offer in compromise may be an option. An offer in compromise is a settlement agreement between a taxpayer and the IRS that allows taxpayers with financial hardship to resolve their tax debts for less than the full amount owed. The Offer In Compromise program becomes an option when other collection efforts have proven unsuccessful and allow you to settle your tax debt for less than what you owe. Here are some questions and answers about OICs:

When should I consider an OIC?

If you cannot pay your tax debt by installment payments or through an installment agreement, you may qualify for an OIC. There are circumstances where the IRS will not accept your offer, so it’s important to review all of the information about OICs on this page before deciding whether or not to submit one.

What are some common reasons that I would be turned down for an Offer In Compromise?

There are several reasons why the IRS may not accept your offer in compromise. These include:

You have the ability to pay your tax debt in full
You have filed for bankruptcy
You have committed fraud or other criminal acts
The debt is less than $10,000
You have been offered and accepted an installment agreement or payment plan for the same tax type within the last five years
You can currently pay less than what you owe in a lump sum. However, if you have a financial hardship and cannot pay anything toward your debt, you may still qualify for an OIC.

What Should I Do If I’m Not Sure If I Qualify for an OIC?

Use the IRS’s Online Pre-Qualifier Tool

If you are considering an offer in compromise, the IRS offers a pre-qualifier tool to help you determine if you are eligible. The pre-qualifier tool asks a series of questions about your individual tax situation and provides an estimate of the chance that the IRS will accept your offer.

The pre-qualifier tool is not a guarantee of approval, but it can help you determine if you have a reasonable chance of being accepted. You can find the pre-qualifier tool on the IRS website.

A Tax Professional Can Help You Understanding Whether You Qualify for an OIC

If you are unsure whether you qualify for an offer in compromise, it is best to speak with a tax professional. They can help you understand the process and determine if you have a reasonable chance of being accepted.

What happens after I send my offer in compromise?

After submitting an offer in compromise, it will take several weeks to receive a response from the IRS. If the IRS rejects your offer, they should provide detailed information about why it was rejected. In some cases, you may need to submit additional documentation or information to support your reason for filing an OIC. For example, if you are seeking an OIC based on being unable to pay because of financial hardship due to unemployment, generally this requires the submission of a letter from your state unemployment agency.

What happens if the IRS approves my offer in compromise?

If your offer is accepted by the IRS, you will be responsible for paying the outstanding tax and any applicable interest and penalties in a lump sum within 45 days. The remainder of your debt will be forgiven. For example, if you owe $60,000 and settle your account for $25,000, this means that you will pay $25,000 to resolve the debt and the remaining balance of $35,000 would not have to be repaid. Once your payment has been made in full, you should receive a notice from the IRS stating that they have accepted your offer. If no such notice is received after 45 days from when your settlement payment was sent to the IRS, please contact the Offer In Compromise office directly. If your offer is not accepted by the IRS, you must continue making monthly payments or pay the full amount owed to resolve your tax debt.