What is an Offer in Compromise?
An Offer in Compromise (OIC) is acknowledgement of both the Internal Revenue Service (IRS) and the owing taxpayer that the amount owed cannot be feasibly paid. The “Offer” is the amount the taxpayer can viably pay, and it is “in Compromise” – meaning, not the entire amount. It is a great tool to help taxpayers ‘settle up’ with the IRS, setting the taxpayer free from unnecessary financial stress. Taxpayers who take advantage of this tool can end up paying about 20% of the amount they owed. It can be a saving grace for taxpayers who truly need it and can prove it.
How does it work?
When you are approved for an offer in compromise by the IRS, it means that both you and the IRS have concluded that the taxpayer is not able to pay off the outstanding taxes in their current financial situation, and that the taxpayer does not any longer have an asset that could be seized in compensation.
In an OIC, the taxpayer offers to pay the maximum amount they can afford, given the financial disposition of the taxpayer. This amount can be substantially less than the overall amount owed. If the IRS agrees to the amount, it will lower your tax debt to match the proposed amount. Once you have been approved and have agreed to the amount, your outstanding tax will be reduced to match that amount.
The taxpayer will get the status of fully paid if they had paid the amount agreed upon, as outlined.
How to Effectively Apply for An Offer in Compromise? (This is where My Tax Settlement comes in.)
To be eligible for an IRS Offer in Compromise the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable. The taxpayer must present a conclusive and comprehensive case to the IRS, including a complete and detailed financial report. And the emphasis here is on “comprehensive,” as the reason most of OIC applications are denied due to errors and omissions.
To have a chance at approval, you should seek professional assistance (hint, hint) in filing your OIC application because it is a complex and taxing (pun intended) process. With the help of a trained and experienced team, you are more likely to get your application approved than attempting to do it on your own.
What could get your Offer in Compromise Rejected?
There are several reasons why the IRS could reject your proposal for an offer in compromise. Some of these reasons are:
- Doubt in the liabilities shared with the IRS.
- Doubt of the fact that the taxpayer could never pay the current amount of outstanding taxes.
To better ensure that your offer in compromise does not get reject, reach out today!