Offer in Compromise: A Guide to Settling Your Tax Debt for Less
If you’re struggling to pay your tax debt, an offer in compromise (OIC) may be an option worth considering. This program allows taxpayers to settle their tax debt for less than the total amount owed, provided they meet specific eligibility criteria. In this article, we’ll take a closer look at the OIC program, how it works, and what you need to know to determine if it’s the right option for you.
What is an Offer in Compromise?
An offer in compromise is an agreement between the taxpayer and the Internal Revenue Service (IRS) that settles the taxpayer’s tax debt for less than the total amount owed. The IRS considers an offer in compromise when the amount offered by the taxpayer represents the most the IRS can expect to collect within a reasonable period.
To be eligible for an offer in compromise, taxpayers must have filed all tax returns, made all required estimated tax payments for the current year, and have received a bill for at least one tax debt included in their offer. Taxpayers who are in an open bankruptcy proceeding are not eligible for the OIC program.
How Does the OIC Program Work?
The OIC program is a complicated process that requires careful consideration of your financial situation. To apply for an offer in compromise, you must submit an OIC package to the IRS, which includes:
- Form 656, Offer in Compromise
- Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals
- Form 433-B (OIC), Collection Information Statement for Businesses
- $205 application fee (unless you qualify for a low-income certification)
The IRS will review your OIC package and determine whether you qualify for the program. If the IRS approves your offer, you will be required to pay the agreed-upon amount in full, in a lump sum, or through a payment plan.
It’s important to note that the OIC program is not for everyone. The IRS considers several factors when evaluating an OIC, including your ability to pay, income, expenses, and asset equity. You must also explore all other payment options before submitting an OIC.
Benefits of an Offer in Compromise
If you’re struggling to pay your tax debt, an offer in compromise can provide several benefits, including:
- Reducing your tax debt to an amount you can afford to pay
- Stopping the IRS from pursuing collection actions, such as wage garnishment or bank levies
- Providing a fresh start and allowing you to move forward with a clean slate
Hiring a Tax Professional
If you’re considering an offer in compromise, it’s important to hire a qualified tax professional to help you through the process. A tax professional can help you determine your eligibility, prepare your OIC package, and negotiate with the IRS on your behalf.
When hiring a tax professional, make sure to check their qualifications. Look for a licensed CPA, enrolled agent, or tax attorney who has experience with the OIC program and has a good track record of helping clients settle their tax debt.
In conclusion, an offer in compromise can be a viable option for taxpayers struggling to pay their tax debt. However, it’s crucial to carefully consider your financial situation and explore all other payment options before submitting an OIC. With the help of a qualified tax professional, you can navigate the complexities of the OIC program and get the fresh start you need to move forward.