Get an Offer in Compromise Accepted by the IRS
An Offer in Compromise (OIC) lets taxpayers that owe IRS money to work out an agreement for what could be significantly less than what is owed. This will also eliminate the debt completely, but the individual or business must follow IRS guidelines. The IRS is not legally obligated to reduce a tax bill, but does so as a matter of IRS discretion. This article will help inform you of whether you qualify for an Offer and how to go about getting one accepted.
Who qualifies for an Offer?
Not everyone can ask the IRS to reduce the amount that they owe. In order to qualify for an OIC, you must fit into one of the categories below.
- The IRS needs to believe they will not be able to collect the full amount that you owe now or in the future. The IRS refers to this as "doubt as to Collectibility."
- The IRS needs to believe that by making you pay the debt you owe would create an economic hardship or by doing so would be unfair and inequitable. The IRS calls this "Effective Tax Administration."
- You need to prove to the IRS that the assessed tax liability is incorrect. The IRS refers to this as "Doubt as to liability."
How Do I File an Offer?
I am constantly getting calls where someone asks, "can you call the IRS and see if they will settle for less than what I owe?" The IRS does not allow this and the process itself is a formal process that requires you to fill out IRS form 656. In order to determine whether you qualify for an Offer the IRS has an online pre-qualifier test. It is recommended that you click on the link to see if you qualify. If you qualify, it is recommended you download IRS Form 656B. This form will instruct you on what documents you need, where to send the offer, how much down you need to provide, who to make the check payable to and more.
How Does an Offer Work?
An Offer takes into consideration your assets, income and expenses. The Offer requires you to disclose everything you own and your complete financial condition under the penalty of perjury. The IRS is very thorough in the investigation process and will learn everything about you and your situation. This includes, your bank information, 401k, stocks, cars you own, homes you own. By filing the offer you are disclosing all your information to the IRS. This leads to the next category.
How Much Should I Offer and How Much is an Offer to File?
As previously discussed, the IRS makes you disclose all your assets and financial condition in order to determine your ability to pay. The IRS believes you should pay the "realizable value" of all your assets plus your future income (future income is = income - IRS allowable expenses and then the IRS will multiply this by the months left under your Statute of Limitations). For example, If you own a car worth $1,000 the IRS says you need to make them an offer of $800. Unless you qualify for the hardship waiver, you are required to pay 20% down and a $150. To learn whether you qualify for the waiver, check IRS form 656B.
If you have any questions on how an Offer works, contact an attorney at Wolf Tax.