IRS Offer in Compromise
What Is An Offer In Compromise?
Are you struggling with unpaid tax liabilities that you cannot afford to pay in full? You may be able to resolve your tax issues with an IRS Offer in Compromise (OIC) program.
An Offer in Compromise is an agreement where the taxpayer can settle their tax debt for less than the full amount owed. The IRS reviews the taxpayer’s financial situation and may accept the proposed settlement amount if it’s reasonable. The taxpayer must comply with all agreement terms, which may include payment plans or a lump sum payment, and stay compliant with future tax obligations.
How We Can Help: Negotiating an Offer in Compromise
Attempting to negotiate an OIC yourself is not advisable. Negotiating an OIC requires strategy and skill. The difference between approval and rejection of an OIC is often the knowledge, attention to details, procedural experience, and judgment of the tax professional negotiating the agreement. Our tax attorneys, attorney-CPAs, and Enrolled Agents possess the key skills and knowledge required to successfully navigate this process.
At Rosefelt Tax Law, we can assist you in:
- Understanding the Offer in Compromise process
- Assessing the taxpayer’s financial situation
- Identifying the most appropriate type of Offer in Compromise
- Presenting a compelling case to the IRS
- Negotiating the best possible settlement terms
- Ensuring compliance with all requirements and deadlines
Types of Offers in Compromise
There are three different kinds of OICs:
- Doubt as to Collectibility — Allows you to settle your tax liabilities for less than the full amount you owe. To qualify for an Offer in Compromise based on Doubt as to Collectibility, the taxpayer must provide sufficient evidence to demonstrate their inability to pay the liability in full and/or that paying the full amount of their tax debt would cause significant financial hardship.
- Doubt as to Liability — Applicable when doubt exists that the IRS assessed the correct amount of tax liability. This method only applies if you can prove you do not owe the tax assessed, not because you are unable to pay the tax liability
- Effective Tax Administration (ETA) — An ETA offer is made when a taxpayer agrees with the delinquent tax amount that the IRS is seeking to collect and would be able to pay the full amount owed, but an exceptional circumstance exists that may cause the IRS to consider the taxpayer’s offer. To be eligible for compromise on this basis, you must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable
The Doubt as to Collectibility Guidelines
The most common Offer in Compromise is a Doubt as to Collectibility, allowing you to settle your tax liabilities for less than the full amount you owe.
The IRS will consider your unique set of facts and circumstances, including:
- Ability to pay
- Income
- Expenses
- Asset equity
The IRS generally approves a Doubt as to Collectibility OIC when the offered amount represents the maximum it can expect to collect within a reasonable period. To determine the acceptable amount, the IRS calculates the taxpayer’s Reasonable Collection Potential (RCP). To qualify for a Doubt as to Collectibility OIC, the taxpayer must demonstrate an inability to pay the taxes in full through assets liquidation or current installment agreement guidelines. The appropriate collection information statement and supporting documents must be submitted to prove this.
The IRS aims to collect the potentially collectible amount from the taxpayer as soon as possible and with the least cost to the government. Accepting an adequate offer is expected to encourage the taxpayer’s compliance with future filing and payment requirements. Upon acceptance, the taxpayer must remain in compliance with all filing and payment requirements for the next five years.
Payment Options for A Doubt as to Collectibility OIC:
The initial payment amount is determined by your chosen payment option and the offer you make.
- Lump Sum Cash Offer
The taxpayer must pay the offer amount in five or fewer monthly installments and must include the net realizable value of your assets (often discounted for quick sale valuation), plus the amount equaling 12 months of your net disposable income as determined by IRS guidelines. - Short Term Periodic Payment Offer
The taxpayer must pay the offer amount in 24 monthly installments and must include the net realizable value of your assets (often discounted for quick sale valuation), plus the amount equaling 24 months of your net disposable income as determined by IRS guidelines.
Information Required To Obtain An Offer in Compromise
In order to submit and ultimately receive IRS approval of an OIC, a taxpayer is required to provide the IRS with a wide range of financial documentation used to evaluate the taxpayer’s ability to pay. The IRS will consider the amount that could be obtained from the equity in your house and other assets, plus any additional amount that you should “reasonably” be able to pay from your monthly budget. Your OIC package will include a recent financial statement prepared on an IRS Form 433-A (OIC) (Individual or Self-Employed Taxpayers) and/or Form 433-B (OIC) (Business Taxpayers), and is often supported by recent bank statements, tax returns, paystubs, house and property appraisals, deeds, car titles, monthly expense invoices and receipts and a variety of other financial documents. These documents are used by the IRS to confirm your eligibility for an OIC and determine the settlement amount it will accept.
Additionally, the IRS reviews your financial information in the light of its own income and expense standards. It does not compute your “reasonable collection potential” by subtracting your actual monthly expenses from your monthly income. Rather, the IRS determines your allowable monthly expenses by using a complex set of artificial national and local expense standards based on family size and yearly income.
How We Can Help
For taxpayers who qualify, an Offer in Compromise is an excellent way to resolve a tax problem and get a fresh start with the IRS. However, the decision to make an Offer in Compromise is complicated — success depends on the proper application of knowledge, experience and attention to detail. The experienced tax professionals at Rosefelt Tax Law have negotiated substantial numbers of OICs and will work diligently to obtain the best possible result for you.
Additionally, the IRS reviews your financial information in the light of its own income and expense standards. It does not compute your “reasonable collection potential” by subtracting your actual monthly expenses from your monthly income. Rather, the IRS determines your allowable monthly expenses by using a complex set of artificial national and local expense standards based on family size and yearly income.
See if You Qualify for an IRS Offer in Compromise
To determine if you are eligible for an IRS Offer in Compromise, or to learn more about the process, contact us today at Rosefelt Tax Law. With the right strategy and guidance, an Offer in Compromise can be a valuable tool to help you resolve your tax debts and achieve financial stability.
Are you struggling with overwhelming tax debt? The skilled tax professionals at Rosefelt Tax Law have a proven track record of negotiating successful Offer in Compromises. Whether you’re dealing with an OIC or another tax issue, our team is here to help. Call us today at (866) 995-0061 or fill out our quick contact form to learn about your real options. Don’t wait – take control of your tax situation now and let us fight for your financial future!