An Offer in Compromise (OIC) is a program offered by the Internal Revenue Service (IRS) that allows taxpayers to settle their tax debt for less than the full amount owed. The idea behind an OIC is that the IRS is willing to accept less than the full amount owed if the taxpayer is unable to pay the full amount and if the settlement is in the best interest of the government. As a taxpayer, you may want to consider submitting an Offer in Compromise (OIC) request if the financial burden has become too much or your liability is unclear. In this blog post, we will dive deep into the OIC program and its criteria for eligibility; how to apply; as well as weigh out the pros and cons of filing with the IRS. Finally, we'll answer one of the most frequently asked questions: How difficult it is to receive an accepted offer?
Eligibility for an Offer in Compromise (OIC) is determined by the Internal Revenue Service (IRS) based on several criteria. The primary criteria the IRS uses to evaluate OIC applications include financial hardship, doubt as to collectibility, and doubt as to liability.
Financial hardship refers to the taxpayer's inability to pay the full taxes owed and maintain a minimal standard of living. When determining if a taxpayer has the ability to pay, the IRS will take into account financial indicators such as income, expenditure, and possessions.
The IRS may feel that a taxpayer won't be able to pay the full amount of taxes due in the close future if there is "doubt as to collectibility". To decide this, they assess variables such as income, investment resources, and potential earning capability.
Doubt as to liability refers to the taxpayer's belief that they do not owe the full amount of taxes assessed by the IRS. The IRS will consider the taxpayer's argument and evidence of their doubt as to liability.
It's important to note that not everyone who is behind on taxes will qualify for an OIC. The IRS has strict guidelines that must be met in order for an OIC to be considered. Taxpayers must also be in compliance with their filing and payment obligations and must provide the IRS with accurate and complete financial information. Those who do not meet these criteria will not be eligible for an OIC.
Taxpayers who are considering applying for an OIC should carefully review the IRS's eligibility criteria and gather all the necessary documentation to support their application. It's always a good idea to consult a tax professional for guidance on the OIC process.
If you are financially unable to settle your tax debt in full, an Offer in Compromise (OIC) with the Internal Revenue Service (IRS) might be a viable solution for you - even though it is a long and intricate process.
The first step in the OIC application process is gathering financial documentation. The IRS requires detailed information about a taxpayer's income, expenses, and assets. Taxpayers will need to provide documentation such as pay stubs, bank statements, and tax returns. It's important to be as accurate and complete as possible when providing this information as the IRS will use it to determine the taxpayer's eligibility for an OIC.
The next step is filling out the OIC application. The IRS provides Form 656, Offer in Compromise, which must be completed and submitted along with the required payment. Taxpayers must also submit a $205 non-refundable application fee or $107 if they are low-income.
It's important to note that submitting an OIC application does not guarantee acceptance by the IRS. The application will be reviewed and a decision will be made based on the information provided.
The process of applying for an OIC can take several months or longer. The IRS will review the application and make a decision on whether to accept, reject or counter the offer. If the offer is accepted, the taxpayer will be required to make payments as outlined in the agreement. If the offer is rejected, the taxpayer will be required to pay the full amount of taxes owed or explore other options to resolve the tax debt such as an installment agreement.
In conclusion, the process of obtaining an Offer in Compromise (OIC) with the Internal Revenue Service (IRS) can be complex and time-consuming. The IRS uses specific criteria, such as financial hardship, doubt as to collectibility, and doubt as to liability, to determine eligibility for an OIC. Not everyone who is behind on taxes will qualify for an OIC. The application process involves gathering financial documentation, filling out the OIC application, and submitting the required payment.
It's important for taxpayers to carefully research their options before deciding whether to apply for an OIC. While an OIC may be a viable option for some taxpayers, it may not be the best solution for others. Taxpayers should consider their unique financial situation and explore all available options for resolving their tax debt.
It's recommended to hire a professional tax resolution company like Ideal Tax as they have the knowledge, experience, and resources to help taxpayers navigate the OIC process and find the best solution for their specific situation. A skilled tax attorney can demystify the Offer in Compromise process, allowing taxpayers to understand their legal rights and available options.