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Offer in Compromise (OIC)
An offer in compromise is a program offered by the IRS and most States to help financially troubled taxpayers reduce their tax debts. Taxpayers can make a compromise in tax payments with the IRS.
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FIND OUTWhat is an Offer in Compromise?
Offer in compromise allows an individual or business to settle their tax debt for less than what they owe to the IRS. It can be an option for the taxpayers who cannot pay their full tax liability or doing so will create a financial hardship. It is also a viable option if the taxpayers whose assets and income are less than their full tax liability. Taxpayers who are eligible for Installment Agreement or other types of debt resolution options with the IRS generally would not qualify for the OIC. Filing an OIC is a combination of multitude of steps and our qualified tax professionals are here to help you navigate the process smoothly by guiding you every step of the way.
What are the eligibility requirements?
First step is to determine whether you qualify for the OIC.
- Taxpayer has timely filed all tax returns or made estimated tax payments
- For business owners who are current on their quarterly tax payments
- Not currently in open bankruptcy proceedings
What are the steps for getting an OIC?
Before the IRS determines your eligibility for OIC make sure that you have been current on all your tax payments and if you are a business owner you are current on your estimated tax payments. This is needed since the IRS needs to determine what percentage of debt it can reasonably expect to collect from you. While it is not a requirement it is advisable to hire an expert to make sure that all the tax filings and payments are current. Following are the steps for OIC:
- FORM 433 A (OIC- Individual) or Form 433 B ( OIC-Business) must be submitted with all required documentation
- Form 656 ( for all individual & business tax debt – Corporation/ LLC/ Partnership) must also be submitted.
- Non refundable $186 application fee
- Non refundable fee for each form 656 submitted
For the submission of OIC proper documentation of assets , income & expenses is required. Offer for OIC can be submitted by selecting either payment option of lump sum cash payment or periodic payment.
Lump Sum Cash Payment
In the case of lump sum cash payment 20% of the total offer amount is submitted with the application. If the IRS approves your offer the remaining balance due on the offer is paid in 5 or fewer payments within 5 or fewer months of the date your offer is accepted.
Periodic Cash Payment
For periodic payment initial payment is submitted with the application and it is required to pay the remaining balance in monthly installments while the IRS reviews your offer for the OIC . Periodic payment option allows a taxpayer to make periodic payments within 6 – 24 months in accordance with the proposed payment terms.
Taxpayers should know that the completion of the OIC process can take anywhere from 4 weeks to 9 months depending on the complexity of the situation.
If the IRS makes a determination that the taxpayer is not current on tax filings & payments then they apply the initial payment you sent with your offer to your tax debt and return both your application fee and offer back to you. This decision can be appealed through the appeal process within 30 days to keep the offer open. For more information our tax professionals are here to help you determine if OIC is an option for you.
What are the financial implications?
Though OIC sounds like the taxpayer is relieved of all current tax liability, there are many financial consequences which the taxpayer should remember how this will impact them. For example if you are planning to borrow from your 401K or IRA account to pay for your OIC you can incur a future tax debt as result. You may want to consult your tax advisor before taking this action.
What happens once an OIC is approved?
If your offer is accepted, you must continue to timely file all required tax returns and timely pay all estimated tax payments and federal tax payments that become due in the future. If you fail to timely file and timely pay any tax obligations that become due within the five years after your offer is accepted (including any extensions) your offer may be defaulted. If your offer is defaulted, you will be liable for the original tax debt, less payments made, and all accrued interest and penalties. An offer does not stop the accrual of interest and penalties.
In addition, your offer may be defaulted if you fail to promptly pay any tax debts assessed after acceptance of your offer for any tax years prior to acceptance that were not included in your original offer.
How we can help you
Our tax professionals are just a phone call away to help you determine whether Offer in Compromise is an option for you. Remember you are not alone and we can help you settle your outstanding debt with the IRS. For more information please contact Allay Tax professionals who can provide you with the best knowledge to help understand this process.
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Reach out to us for a free consultation. Our tax experts can help you determine the best service to get relief from your debt.
