Know what an Offer in Compromise is and if this could be a good alternative for you and what are the requirements to make a good negotiation.
Forty-one percent. That`s the percentage of offers in compromise that the IRS accepted in 2018. As a enrolled agent with the IRS, I can tell you that those acceptances were not based on fees or luck, but on real and convincing facts and evidence that were presented in those cases.
What is the offer in compromise?
An Offer in Compromise (OIC) is an option offered by the IRS that allows a taxpayer to settle their debt for less than what is actually owed. This option is great for taxpayers because it gives them a fresh start with the IRS.
There are three reasons for submitting an offer to the IRS:
- The doubt that the taxpayer cannot pay all of their tax debt.
- The doubt that the taxpayer is responsible, if the IRS has mistakenly evaluated the amount of the debt.
- For effective tax administrative reason, which is when the taxpayers can pay their debt, but the payment of the total amount would cause economic difficulties.
Is the Offer in Compromise a good resource for you?
The IRS created the Offer in Compromise program because many taxpayers cannot pay their tax liability without causing them financial hardship. Only in 2018, the IRS accepted 24,000 offers, for a value of $261.3 million. That said, they also rejected 35,000 offers. So how can you know if the offer in compromise is right for you?
To be successful with an offer in compromise, you must show that you cannot pay the full amount you owe (IRM 18.104.22.168), the IRS generally approves offers when the amount offered represents the most the IRS can expect to collect within a period of reasonable time.
The first thing to keep in mind when evaluating whether filing an OIC is appropriate for you is to know if you meet the eligibility requirements.
To be eligible for an Offer in Compromise, you must:
- Submit all tax returns
- Have received at least one collection of a tax debt included in your offer
- Make all required estimated tax payments for the current year
Beyond eligibility, the IRS will consider the following when determining your financial difficulties:
- Ability to pay
- Your assets
Remember, if you need to be represented before the IRS, hire either a tax attorney, a Enrolled Agent (EA), or a Certified Public Accountant (CPA).