Offer in Compromise
When a taxpayer’s IRS debt is more than they can pay, an offer in compromise (OIC) is an excellent solution to compromise with the IRS and pay back less than what was originally owed. There are three different OIC programs with different qualifications and situational requirements. While it may seem easy to apply and qualify for these programs, hiring a tax professional to assist you through the process and to represent you before the IRS can save you time and money.
Three Types of Offer in Compromise Programs
Because each program has its differences, we explore each program for our clients to see what would be most suitable. These three programs are the Doubt as to Liability OIC, the Doubt as to Collectability OIC, and the Effective Tax Administration OIC.
Doubt as to Liability Offer in Compromise
This option applies to those who believe an error was made either by themselves or a third party (like an accountant or the IRS) and that the back taxes are incorrect. This OIC is filed to clarify the situation and correct the error.
Doubt as to Collectability Offer in Compromise
If the taxpayer’s assets and income are less than the amount of tax debt owed, this OIC is offered to reduce the amount owed.
Effective Tax Administration Offer in Compromise
If the taxpayer has the income and assets to pay off their tax debt, but if they were to experience hardship by paying it off in full, they may qualify for the Effective Tax Administration Offer in Compromise.
Qualifying for An Offer in Compromise
There are a lot of things that can disqualify you from an OIC. For example, if you’re in an open bankruptcy, have not filed all required tax returns, and among other things, have not made all the required estimated payments, you cannot qualify for an OIC. For a quick check to see if you can qualify for an OIC, use the IRS’s Offer In Compromise Pre-Qualifier online tool .
After you know whether or not you could qualify for an Offer in Compromise, it is best to seek assistance from a tax professional next. Sending in the application has a non-refundable fee of $186 attached to it, so to increase your chances of having the proposal accepted, it is worth your time to have a tax professional write the proposal for you.
Filing an Offer in Compromise
If you choose to use an OIC to reduce your tax bill, you’ll need to gather financial information and prepare IRS Forms 433-A (OIC) and 656.
You can prepare the forms and represent yourself, but be aware that the form preparation is complex, requires planning, and is filled with rules. You will sign the forms under penalty of perjury, so ensure that you are exact. To be more confident in filling out these forms, we recommend having a tax professional help you through the process.
Representation Before the IRS with an Offer in Compromise
Applying for an offer in compromise can be stressful, especially if you have never heard of the program before. While many sales representatives at other tax resolution firms only know about the Doubt as to Collectability OIC, we look at all three types of OICs and other potential solutions to help find you your best option because other IRS payment plan alternatives that may serve you better.
If you think you may qualify for an OIC, call our office at 844-774-8829.