Can’t you pay off your tax liability because of your financial difficulties? The IRS may help you with an Offer in Compromise (OIC). When you can’t pay off your tax debts, the IRS allows taxpayers to pay less than the full amount owed.
The Offer in Compromise isn’t convenient for everyone. Before submitting it, you should review all other payment options. Besides, the amount you offer should be the highest they can expect to collect within a reasonable time.
What is an Offer in Compromise? According to the IRS, An Offer in Compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer’s tax liabilities for less than the full amount owed.
Who Qualifies for the IRS Offer in Compromise?
First of all, you should answer some questions to see whether you’re eligible for an Offer in Compromise. Check out our “free Offer in Compromise pre-qualifier” tool or you can visit IRS’s Offer in Compromise pre-qualifier page.
Requirements for the Offer in Compromise
- Have you received a back tax bill from the IRS?
- Do you have unfilled tax returns?
- Did you file all tax returns due? And did you pay all required estimated taxes for the current year before offering to settle?
Those, who are in an open bankruptcy, should wait to make an Offer in Compromise with the IRS.
Can Every Eligible Tax Payers Get Approved for an Offer in Compromise?
There are three circumstances to get approved for an Offer in Compromise, but you must prove to the IRS one of them.
- Doubt as to Liability: When you don’t have owed the tax debt the IRS has assessed.
- Doubt as to Collectibility: When it’s impossible to collect the full amount of your tax debt. Subsequently, the IRS allows you to pay less than you owe.
- Effective Tax Administration: When you have an exceptional circumstance that would make it unfair or inequitable to collect the full amount owed.
If you don’t pay your taxes, the IRS can levy your income and assets or even put you in jail. On the other hand, if you fall within the above conditions, the IRS may approve your settlement offer.
How to apply for tax forgiveness
- Complete an Offer in Compromise form with supporting documentation.
- Submit a non-refundable application fee ($205) and initial payment towards the total Offer in Compromise. Your non-refundable payments and fees offset your tax liability. However, if you meet the Low Income Certification Guidelines, you don’t have to send the application fee or the initial payment and make monthly installments while they’re reviewing your offer.
- Payment option: You can make your first payment with the application using one of the two options below.
- Lump Sum offer: With your application, you can pay 20% of the total offer amount. Therefore, you’ll receive a written confirmation that your offer has been accepted. Then you must pay the remaining balance in five or fewer payments.
- Periodic Payment: If you can’t pay the full offer in five or fewer months, submit your initial payment with your application and continue with the monthly payment while the IRS considers your offer. Final payment must be made within 24 months of the IRS accepting your offer.
Any application doesn’t guarantee the settlement offer. First, the IRS carefully considers each application. If you meet the eligibility and the application is completed, your offer is assigned to an IRS examiner to evaluate your application. At the end of, they send a written result.
Moreover, they reject almost half of the applications because many applications have omissions and mistakes. Besides, this is also a rejection reason when the offered amount is less than what the IRS could collect via taxes and seizure of assets.
You may appeal a rejection form within 30 days if your proposal is rejected.
- The IRS uses tight criteria to determine eligibility.
- When filling out the required paperwork and providing supporting materials, avoid making mistakes that could result in rejection.
- An approved OIC can help with paying taxes and make them easier to manage.
- Ask for help from a tax attorney to prepare a convincing Offer in Compromise.
Get Help Settling Your IRS Tax Debt
Let’s say you’re eligible to apply. However, this doesn’t mean you’ll get approval from the IRS. Before submitting an offer, you should carefully assess your prospects. Otherwise, you may waste time and money. Besides, you may have alternative tax relief strategies.
We recommend consulting a tax lawyer to manage this process in the best way or submit a successful application.