OIC stands for the Offer in Compromise Program. An Offer in Compromise (OIC) will enable you to lessen debt so that it does not impair your viewpoint if you are unable to pay back tax debt because of some hardship.
An IRS offer may be the best IRS tax settlement for your needs and allows you to settle your past tax liability for less than the entire amount you owe. An IRS offer in compromise is an offer to settle a tax debt based on the sum determined as the RCP, or reasonable collection potential. The proposal cannot be unjust or unfair to either side.
A settlement enables you to pay down your tax burden for a portion of what you actually owe. If you are unable to pay your entire tax debt or doing so would put you in a difficult financial situation, this may be a viable choice.
Are You Considerable for the OIC?
Everyone wants to have his tax bill cut, therefore simply wishing to work out a deal with the IRS is insufficient. You must demonstrate to the IRS that one of the following circumstances exists in order to be eligible for an offer in compromise consideration.
- There is considerable uncertainty as to whether the IRS will be able to collect the tax debt from you in the near future or right away.
- Due to extraordinary circumstances, paying your entire tax debt would result in “economic hardship,” or would be “unfair” or “inequitable,” according to the IRS.
Another less common justification is the “question as to responsibility.” If a taxpayer wants to pursue this, they must submit Form 656-L. This offer is predicated on the assertion that there is uncertainty over the accuracy of the tax liability determined. This is an uncommon and more challenging course to take.
To find out if you qualify to submit an offer in compromise, the IRS advises using its online pre-qualifier tool.
There is a formal process involved in making an offer to the IRS; you cannot simply call and suggest a bargain. Filling out IRS Form 656—Offer in Compromise—is the first step. An OIC filing requires a $186 application fee, which you must include with Form 656.
If your monthly income falls below the poverty threshold, you might not be required to pay the charge. An Application Fee Worksheet from the Form 656 booklet must be submitted if you want to be excused from the poverty guidelines.
You must submit Form 433-A (for individuals) or Form 433-B (for businesses), Collection Information Statement, to the IRS as part of the OIC. Even if you owe the IRS money on your own, the IRS may ask for information about your spouse in your Collection Information Statement if you’re married and live in a state that recognizes community property.
If you are committed to achieving your OIC, pay close attention to how you fill out this form. When contemplating an OIC as opposed to a request to pay your taxes in instalments, the IRS examines the disclosures you provide on this form far more carefully.
- You must abide by all of the offer conditions mentioned in Section 7 of Form 656. This includes submitting all necessary tax returns and instalment payments.
- Federal tax liens are not released until your offer terms are met; certain offer information is accessible for public examination by requesting a copy of a public inspection file, and any refunds due within the calendar year in which your offer is accepted will be applied to your tax debt.
- If your offer is turned down, you have 30 days to file an appeal using Form 13711 PDF, Request for Appeal of Offer in Compromise.
- If your offer was turned down, the IRS Independent Office of Appeals can help you further.
The Drawback of Submitting an OIC
Form completion is just the beginning. The IRS will request a tonne of financial information from you, including pay stubs, bank statements, vehicle registrations, and a variety of other things. It takes a lot of time and effort to complete this. To support their offer in the compromise request, some taxpayers end up sending IRS boxes worth of paperwork.
An additional disadvantage of presenting an OIC is if your OIC is denied, the IRS will have all the information necessary to step up its collection operations against you thanks to the asset declarations you provided. It makes sense to refrain from making an offer unless it has a good chance of being accepted because of this.
Additionally, bear in mind that interest continues to accrue throughout the offer in the compromise discussion process, which means that if you don’t eventually reach an agreement, you’ll owe more money than before.
What happens if you determine the required offer amount by figuring out the net realisable value of your assets and your potential future income, and the result is far higher than you can afford?
In case you aren’t concerned about the IRS seizing any assets you didn’t disclose, think about making an offer regardless. Under the effective tax administration (ETA) exception to the OIC rules, IRS employees have some discretion to take less money than is required.
- People who have medical conditions or psychological issues receive particular consideration from the IRS.
- The IRS has traditionally given preference to bids from those who are over 60 years old and have poor financial prospects. And if it has a negative financial impact on you, the IRS will also take HIV, drug, or alcohol-related disorders, as well as a problem with a family member, into account.
The IRS accept offers in compromise that are equal to or higher than the IRS’s estimate of the taxpayer’s likely future ability to pay. You have the choice to appeal a decision that rejects your offer in compromise.
The best method to alert the IRS to exceptional circumstances is to include a letter with your Collection Information Statement (Form 433-A). You only need one or two paragraphs to tell your story of misery; it doesn’t need to be formal or elegant.