One of the few choices available to taxpayers to resolve their issues with the IRS is to submit an offer in compromise (OIC). With the help of this service, you can pay off a portion of your tax burden. The Federal Reserve estimates that 30% of Americans would be unable to come up with $400 in cash to pay an unforeseen need. If they file their taxes only to discover that they have a substantial tax burden owed to the Internal Revenue Service, this lack of savings could be virtually fatal (IRS). But "nearly" is the essential word here. If taxpayers cannot pay their taxes on time, the IRS is willing to work with them. One of the few choices available to taxpayers to resolve their issues with the IRS is to submit an offer in compromise (OIC). With the help of this service, you can pay off a portion of your tax burden. What you need to know about this program is as follows.
Key Takeaways
- Taxpayers can settle their tax burden for less than they are owed by using offers in compromise.
- The taxpayer proposes the offer's dollar amount and selects the repayment schedule. The offer is approved or denied by the IRS.
- If the taxpayer can show that there is uncertainty regarding the tax liability, the debt's collectability, or the assessment's fairness, the IRS will accept the offer.
What Is an Offer in Compromise?
Taxpayers can settle their tax obligation through offers in compromise for a portion of what is owing. The IRS will evaluate your income, expenses, assets, equity, and overall ability to pay the debt when it analyzes your offer in compromise because this program is available to individuals who need it. Acronym: OIC A lump sum and a recurring payment plan are the two ways to pay for an offer in compromise. If applicants select a lump-sum payment option, they are required to send a 20% down payment, and the remaining amount of their OIC must be paid in no more than five following installments. Those who use periodic payment plans are required to make monthly payments. To assist taxpayers in determining whether they would be eligible for an OIC settlement, the IRS provides an interactive pre-qualifier tool.How to Qualify for an Offer in Compromise
The IRS might accept your offer in compromise, but there is no certainty. The IRS bases its choice on several variables. The IRS may accept an OIC for three reasons after considering your financial position. You won't be accepted if you are eligible for a payment installment agreement or any program that aids taxpayers in debt repayment. The IRS assumes that if you are eligible for one of these programs, you have the financial means to pay down your tax debt in full over time.Doubt As to Liability
If there is any doubt as to whether you owe the tax debt or not, the IRS may accept your offer. You may utilize an OIC, for instance, to correct a mistake you think was made on your tax return. However, remember that you can modify a tax return as well, and this might be a simpler approach to deal with problems of this nature.Doubt As to Collectibility
The IRS may also accept your application if it appears improbable that you'll ever be able to pay off the tax debt in full based on the supporting documentation you've provided that details your present financial status. If you add up your income and the worth of your assets in this situation, it can be less than what you owe.Issues With Effective Tax Administration
Finally, if "paying in full would either create an economic burden or would be unfair and unjust due to extraordinary circumstances," you might be granted. Even if you are aware that you owe the debt and have the resources necessary to pay it off, you may still be able to qualify for this reason, which takes precedence over other factors like collectibility or doubt of guilt.Get the Instructions and Forms
On the IRS website, a pamphlet with all the offers in compromise forms and instructions is available. It is known as Form 656-B. The pamphlet is also available for pickup at your local IRS taxpayer help center or by calling the IRS at 1-800-829-3676.Alternatives to an Offer in Compromise
The IRS provides at least four more ways to recover from unpaid taxes. A different choice is to sign an installment agreement, a payment schedule with the IRS that calls for regular payments. If you believe you can pay off your debt in that time, a short-term installment plan allows you an extra 120 days to raise funds. If it takes longer, however, you might request to enter a long-term plan. There are some limitations; depending on your circumstance, there can be application fees. The IRS may voluntarily agree not to pursue the tax liability in the short term if it considers that it is not now in a position to do so. Through this technique, the debt won't be eliminated; it merely buys you some time to regain your financial stability. A long-term payment plan to settle your tax debt with the IRS at a lower cash amount is available through the partial payment installment agreement program. You can also declare bankruptcy, but there are specific guidelines that must be followed regarding which tax bills can be discharged and which cannot in Chapter 7 or Chapter 13 bankruptcy processes.Frequently Asked Questions (FAQs)
How can I get a compromise offer?
You must complete Form 656-B, which is available on the IRS website, to receive an offer in compromise from the IRS. You must show that the tax liability is incorrect or that it cannot be collected owing to your financial status or unusual circumstances to be eligible.How long does it take to make a compromise offer?
Tax experts' estimates range: You must submit your tax returns on schedule and make the requested payments during the procedure, which might last anywhere from six to fourteen months or longer. However, if the IRS does not reject the offer within 24 months, the offer is said to have been accepted.