What is an IRS Tax Offer in Compromise? (OIC)

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.

Offer in Compromise

How does offer in compromise 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 apply for 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.

Offer in compromise Pre Qualifiers 

Taxes are quite essential for public expenses and government so there are quite strict pre-qualifiers to be eligible for tax settlement. But, before you make an offer to the IRS, you need to check your eligibility and understand what the IRS takes into account. Your first eligibility test is your reason for requesting a compromise. 

IRS will only consider IRS settlement offer if you have any of the following reasons:

  • There is a doubt as to whether the IRS correctly determined the amount you owe in tax debt. 
  • If your debt is fully collectible it means your assets and incomes are less than the amount you owe.
  • The debt is correct and you are fully able to pay all debt, but doing so can cause economic hardship. 

Well, if you are making an OIC based on the 2nd or 3rd reason, the IRS will take other factors into account as well. To determine whether you can pay and how much you can pay, is based on the following 4 components. 

  • Your ability to pay
  • Your income
  • Your expenses
  • Your assets

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.                
  • You have not filed required federal tax returns.
  • You have not made required estimated tax payments. 
  • You are self-employed, have employees, and have not submitted required federal tax deposits.

To ensure that your offer in compromise does not get rejected, reach out today at  619-318-8564 or email us at info@mytaxsettlement.com.