As a tax resolution expert with True Resolve Tax, I get regular inquiries about various tax settlement methods. The IRS offer in compromise is one of the most sought after. If successful, it enables you to settle your tax debt for a fraction of its actual value.
Most taxpayers regularly reach out to me seeking clarification. In this article, I’ll address the ten most common questions I receive regarding this method.
Popular Queries Regarding the IRS Offer in Compromise
At True Resolve Tax, we exhaustively answer these and more questions:
1. What Are My Chances of Qualifying?
You must understand that not all Offer in Compromise (OIC) requests are accepted by the IRS. The rate of acceptance used to be below 30% but since 2012 it has steadily increased past the 40% mark. This positive change is attributed to the Fresh Start Initiative which was introduced to assist struggling taxpayers.
Although the agency reserves the right to reject your IRS offer in compromise, sometimes the rejection happens due to the taxpayer’s mistakes. These include failing to fulfill basic requirements and being unable to pay the amount offered even after a successful application.
2. What are the Requirements?
There are three circumstances under which your IRS offer in compromise will be accepted:
- Doubt as to Liability. This means you dispute the amount demanded by the IRS as tax debt. You must be able to prove that the assessment of tax is incorrect.
- Doubt as to Collectability. This occurs when the tax agency realizes it can’t realistically collect the full tax debt. This happens if your total assets and income are lower than what you owe the IRS.
- Effective Tax Administration. If the IRS believes collecting the full tax amount will cause you economic hardship, despite sufficient income or assets to pay it in full, your offer might be accepted.
3. Which Forms Do I Fill Out?
Depending on whether you’re applying for OIC as an individual or business the form will vary slightly, but the basic forms you should use are:
- Form 656
It’s suitable when applying to the IRS for the offer in compromise based on effective tax administration or doubt as to collectability. This form is submitted along with Form 433-A for individuals and Form 433-B for businesses.
- Form 656-L
It’s used when applying for OIC based on doubt as to liability.
4. How Much Does it Cost to Apply?
You’re expected to pay a non-refundable application fee of $186. Waivers are only applicable if you’re applying based on doubt as to liability, or low-income exception. You won’t be able to obtain these waivers if applying as a business entity.
5. What Are My Payment Options?
You can satisfy the payment requirements of an IRS offer in compromise in one of two ways:
- Lump-Sum Cash Offer
After your offer is accepted you may pay in 5 or fewer installments, in 5 months or less. The five-month time frame starts from the date of acceptance listed on the IRS letter they will send. When submitting the application, you must include a non-refundable amount equivalent to 20% of the offer.
- Periodic Payment Offer
You may pay in six or more installments, so long as you do so within 2 years. During submission, a non-refundable first proposed installment must be included in the application.
If your offer is rejected, these non-refundable fees will go towards reducing your tax debt. While reviewing the offer in compromise application to the IRS, the tax agency will suspend any collection activities against you.
6. Do I need Professional Help to Apply?
Although it’s possible to apply for an IRS OIC by yourself, I highly discourage it. That’s because you may find yourself in over your head as far as tax laws and procedures are concerned.
As a trained tax resolution professional, I have dealt with the IRS countless times, and understand all the intricacies involved. This expertise and experience has put me in the best position to assist with your tax debt. At True Resolve Tax, we have a 100% success rate for all OIC’s submitted by our team.
Should you find that you do want to submit an OIC on your own, without the fees of professional services from beginning to end, you should check out our DIY OIC program to obtain some professional insight while still doing the bulk of the work and all of the negotiations on your own.
7. What is a Reasonable Offer to the IRS?
Your offer might be rejected for offering an amount the tax agency deems too low. Therefore, you need professional help since you’re not sure exactly how much the IRS will be satisfied with. With my expertise, I can utilize your financial information to arrive at an offer that’s more likely to be accepted.
The IRS uses your Reasonable Collection Potential (RCP) to determine how much you should pay. RCP is calculated by considering your assets as well as current and anticipated future income. Your expenses are also evaluated to show a realistic ability to service the OIC.
The mistake many people make is just coming up with an amount to offer that is not based off any of the criteria the IRS will evaluate the acceptance based on.
8. What if My Offer is Rejected?
If you believe the rejection is unfair, you may appeal to the IRS Office of Appeals. You must do so within 30 days of getting notified of the decision. Your offer may be returned if you make mistakes during the application process. These include omitting important information, failing to submit necessary fees, and not having filed all your tax returns.
A returned offer is different from a rejection because it can’t be appealed although it can be re-submitted.
If your offer is rejected, whether you appeal and lose or don’t appeal, the IRS will extend the collection period on your balances and send you back to collections.
9. What if My Offer is Accepted?
If your IRS offer in compromise is accepted, you must remain in the tax agency’s good books for the next 5 years. This means paying your installments as well as other tax-related obligations on time. You must file all your required taxes on time and not owe anything when they are filed.
10. What Happens if I Default on an Offer in Compromise?
Defaulting on your OIC, whether by missing payments or not staying current, will make the agreement null and void.
The consequence will be your previous debt being reinstated in full even if you’ve completed paying the offered amount. The reinstated debt will include accrued penalties and interest that were on hold while your offer was in good standing
This is the most requested information about the IRS offer in compromise. The tax agency offers various tools to help with the process. One of these is the OIC pre-qualifier which helps you calculate your chances of success. This tool can be a little misleading, so we have created our own which you can find here.
Remember this tool only provides rough estimates. A tax resolution expert will help you come up with more accurate calculations. In the past, some taxpayers’ OIC applications have been accepted even after being disqualified by the pre-qualifier.
Get Tax Help Now
At True Resolve Tax, we make it our business to improve the relationship between taxpayers and the IRS. Our services are designed to help you pay off your tax debt in the simplest way possible. All our tax resolution specialists are Enrolled Agents, meaning we’re licensed to negotiate with the IRS on your behalf. We also undergo regular training to ensure we’re up to date with all tax codes.
If you’re interested in applying for an IRS offer in compromise, we’ll do our best to get you the most beneficial deal. For more information, you may call or contact us online. We also welcome you to meet us face to face if you happen to be in Denver, CO.