Offer In Compromise
The IRS Fresh Start Program , initiated in 2011, has simplified paying back taxes for struggling taxpayers by introducing various relief programs. The Internal Revenue Service (IRS) introduced these payment plans in order to ensure taxpayers can pay back their debt without incurring further expenses. The Offer In Compromise (OIC) is one of the most popular IRS Fresh Start programs, likely because the OIC allows taxpayers to settle their tax debt for a fraction of the original amount owed.
An Offer In Compromise (OIC) is an agreement that the taxpayer will pay the Internal Revenue Service (IRS) a portion of their debt rather than the lump sum. Keep in mind that the taxpayer in question must not have the ability to pay and have supporting evidence of financial hardship to qualify for this program. A taxpayer should generally not have assets and finances to pay the balance owed on the account entirely. Although the acceptance rates for the Offer In Compromise (OIC) are low, retaining the services of an experienced tax professional will improve the chances of acceptance.
Pros of the Offer In Compromise
Tax refunds are held onto by the IRS during the application consideration period and later handed over to the applicant. The Form 656 Booklet provides this information.
Allows taxpayers to pay a subsidized amount that won't cripple their finances.
Cons of the Offer In Compromise
The application has a lower success rate than other IRS Fresh Start programs.
The period for consideration is extensive, considering that the application might still get rejected.
Applying For An Offer In Compromise
Before applying for an OIC, taxpayers must ensure that they are initially eligible to make the offer. In order to check eligibility, taxpayers may utilize the IRS Online Pre-Qualifier tool. The Internal Revenue Service's requirements for Offer In Compromise qualifications are as follows:
The applicant is involved in an ongoing bankruptcy proceeding.
The applicant has filled out necessary documents for an individual who is self-employed or employing other individuals.
The applicant has filled out all mandatory tax returns.
Along with the requirements mentioned above, the applicant must provide details of their living status and their current financial situation, i.e., their total tax debt.
Self-employed or wage-earning taxpayers must fill out and submit Form 433-A to the IRS. The purpose of this form is for the IRS to determine whether or not the applicant has the ability to pay the tax liability. Following this, taxpayers should provide the tax debt's precise details and the amount they owe by submitting Form 656 Offer In Compromise Booklet to the IRS. Additionally, taxpayers should provide the proposed payment sum in the forms they submit.
Once the application is submitted, the IRS will begin the process of consideration. This process will span a significant period. The IRS has been known to deliberate whether or not to approve an offer for up to six months! During this time-frame, the Internal Revenue Service's efforts to collect the owed debt will be delayed. However, keep in mind that the IRS can file a federal tax lien notice if they eventually reject the application. If the IRS accepts the offer, the following terms will come into play:
Any refunds during the calendar year when the IRS accepted the offer will apply to the tax debt.
The IRS holds federal tax liens until the taxpayer can fulfill the terms in the offer.
Applicants must meet all the offer terms provided in Form 656, which also include the filing of all necessary tax returns and making all pending payments.
Payments & Fees
Keep in mind that applying for an Offer In Compromise (OIC) requires payment. The application fee for an OIC currently stands at $205 and is non-refundable. Note that the taxpayer can waive the application fee if they can provide proof of inability to pay. This waiver will also come into effect if the IRS determines that the applicant's income is disproportionate to their family size in terms of the federal poverty guidelines.
The initial payment sum will vary depending on the type of application the taxpayer is making. There are two payment options available.
This option requires the applicant to submit the initial payment along with Form 656. The applicant may pay their balance due per installment during the consideration period. If the IRS accepts the offer, the payments will continue each month until the balance is paid off and the tax liability disperses. The terms for periodic payment typicall last for 24 months.
In this case, the applicant must make a payment submission amounting to 20 percent of the proposed amount. If the offer is approved, the IRS will send confirmation to the applicant, and the taxpayer will pay all pending payments in subsequent installments. Keep in mind that the payment process should not exceed five installments.
What If The IRS Rejects My Offer?
There is always a chance that the IRS might reject the offer. If that happens, the following course of action will take place:
Taxpayers can choose to appeal the rejection within 30 days by using the provisions of Form 13711 .
The IRS will also provide taxpayers with additional assistance for the appeal via its Independent Office of Appeals.
Alternatively, the IRS Fresh Start program includes programs such as Installment Agreements and other payment plans that will provide relief to qualified taxpayers.
LifeBack Tax Can Help Get Your Offer In Compromise Accepted!
The average accepted Offer In Compromise (OIC) amount is usually a little over $6,000. Taxpayers can successfully achieve an OIC in certain circumstances, e.g., when assets and income are less than what the taxpayer owes, or payment would create economic hardship. At LifeBack Tax, our average offered settlement amount is $500 for our qualified clients. Our clients pay about 4% of their total tax owed to the IRS once the OIC is accepted. If you qualify for this program, it is in your best interest to move forward with the IRS. The OIC is the most effective way to settle back taxes owed to the IRS. Our tax resolution experts have studied the tax code and regulations thoroughly. We strive to determine the best possible offer for you.