An Offer in Compromise (OIC) is a way to settle a tax debt owed to the Internal Revenue Service (IRS) where the taxpayer makes an offer to settle the tax debt based on their ability to pay. The taxpayer must provide the IRS with information about their financial situation. The IRS then analyzes that information and determines whether the OIC will be accepted.
An OIC makes it possible for a taxpayer to settle their tax debt for less than they owe.
The ultimate goal is a compromise that suits the best interest of both the taxpayer and the IRS.1
In order to submit an OIC you must not be in open bankruptcy proceedings. You also can’t have an open IRS audit or an outstanding innocent spouse claim. Once your bankruptcy is discharged and closed, your IRS audit is completed, or your innocent spouse claim is resolved, you can then file an OIC.
You also have to have filed all tax returns and be current with any estimated tax payments. The IRS provides an online tool to help you determine if you qualify for an OIC and prepare a preliminary proposal.2
You need to have money available to make an OIC. The application fee is $186 and is only waived if you meet Low-Income Certification guidelines. You must also include payment with your OIC application unless you meet Low-Income Certification guidelines. If you choose a Lump Sum Cash payment option you are required to pay 20% of the total offer amount. The remaining balance can be paid in five or fewer payments within five months of the date your offer is accepted.
You can also choose to make periodic payments and have to submit the first payment with your OIC application. Then, you will have 6 to 24 months, depending on your offer terms, to make monthly payments. While the IRS is considering your OIC you will have to continue making these monthly payments. Generally, payments made on an OIC will not be returned, but will be applied to your offer amount. You can, however, make a deposit instead of a payment, and it may be returned if your offer is rejected by the IRS. If it is accepted, your deposit will be applied to your offer payment.
You also need to fill out and submit the proper forms to the IRS to make an OIC. The IRS considers your ability to pay, income, expenses and asset equity, so the forms require that you provide detailed information in a number of areas. These area include Personal and Household; Employment; Cash and Investments, including retirement accounts and life insurance policies; Personal Assets including real estate, vehicles, artwork, jewelry and other items of value; and Business Assets for Self Employed Individuals, including income and expenses.
You will also have to furnish documentation including items such as copies of your most recent pay stub or earning statements from each employer; copies of your most recent statements for investment and retirement accounts; copies of statements for pension, Social Security, rental income, interest and dividends , court orders for child support, alimony and rent subsidies; copies of individual bank statements for the most recent three months; and copies of the most recent statements from lenders on loans.
A complete list of all documents you must submit can be found on Form 433-A (OIC) – Collection Information Statement for Wage Earners and Self-Employed Individuals.3 You must provide truthful information when filling out the OIC forms. Submitting these forms with false information, or making a false statement to an IRS employee, is considered fraud and may be subject to civil or criminal penalties.4
The OIC process requires a significant investment of time in filling out the paperwork, but it can put taxpayers on a course to a fresh start that sees them getting out from under their tax burdens. Seeking the advice and assistance of a tax professional can ensure that the process goes smoothly and that you understand all the advantages and disadvantages of submitting an OIC.
Contact our experienced Tax Resolution Law Firm for help with an Offer in Compromise matter. With over 20 years’ experience in Tax Resolution, we understand the needs of our clients. Privacy, professionalism and confidentiality are at the core of our practice and we work to resolve your tax concerns and issues effectively and efficiently. Call today and find out how we can help you!
1,3 IRS Form 656 Booklet, Offer in Compromise, www.irs.gov
2 IRS Offer in Compromise Pre-Qualifier, www.irs.gov
4 Offer in Compromise – Frequently Asked Questions, www.irs.gov, Updated 6/20/2018