IRS Offer in Compromise Explained
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Originally Posted On: https://blog.greenwichtime.com/lifestyle/2022/06/17/irs-offer-in-compromise-explained/
Did you know that an estimated $11.9 trillion in adjusted gross income on 148.3 million tax returns in 2019?
Nobody wants to owe the IRS money, but sometimes things happen that are out of our control.
If you’re one of the millions of Americans who owe money to the IRS, you know how scary and frustrating this can be. You may feel like you’re alone and there’s no way out.
Keep reading to learn more about how an offer in compromise works and see if it could be a solution for you. With an offer in compromise, you may be able to get your debt reduced and avoid penalties and interest charges.
What Is Offer in Compromise?
The Offer in Compromise (OIC) program can be a helpful tool for taxpayers who are struggling to pay their federal tax debt. Under this program, the IRS agrees to accept less than the full amount of taxes owed in exchange for the taxpayer agreeing to pay the reduced amount.
This can be a good option for taxpayers who cannot afford to pay their full tax debt and want to avoid going into collection. There are several requirements that taxpayers must meet to qualify for an OIC, including demonstrating that they are not able to pay their tax debt and that the Offer is in the best interest of the government.
However, if approved, an OIC can provide much-needed relief for taxpayers who are struggling to settle their tax debt.
What Are the Requirements for an Offer in Compromise?
To be eligible for an Offer in Compromise (OIC), taxpayers must first meet certain requirements. They must:
- File all required tax returns
- Be current on all tax filings and payments
- Make all required estimated tax payments for the current year
- Have paid any past due amounts for federal taxes, state taxes, child support, or student loans
If a taxpayer meets these requirements, they can then submit an Offer in Compromise application with the IRS. This application must include:
- The taxpayer’s offer amount
- An explanation of why the taxpayer is not able to pay the full amount of taxes owed
- A payment plan for how the taxpayer will pay the reduced amount
Once an OIC application is submitted, the IRS will review the information and decide on whether to accept or reject the offer. If the IRS accepts the offer, they will enter into a legally binding agreement with the taxpayer. If the offer is rejected, the taxpayer can appeal the decision or submit a new offer.
What Happens if My Offer in Compromise is Accepted?
If your Offer in Compromise is accepted by the IRS, you will enter into a legally binding agreement with the IRS. This agreement will outline the terms of your OIC, including the amount you will pay and the timeline for payment. It is important to note that if you do not adhere to the terms of your OIC, the IRS can revoke the agreement and require you to pay the full amount of taxes owed.
If you have any questions about your OIC or are having trouble making payments, you should contact the IRS as soon as possible. They may be able to work with you to modify the terms of your agreement.
How to Apply for an Offer in Compromise
If you think you might be eligible for an Offer in Compromise, you can begin the application process by completing Form 656-B (Offer in Compromise Booklet). This booklet includes all of the forms and instructions you will need to submit an OIC application.
Once you have completed Form 656-B, you will need to submit it along with a $186 non-refundable application fee and a $400 non-refundable initial payment. These payments can be made by check or money order and should be made payable to the “United States Treasury.”
If you are not able to pay the application fee or initial payment, you can request a fee waiver by completing Form 656-A (Offer in Compromise Application Fee Waiver Request).
Once your OIC application is complete, you will need to submit it to the IRS for review. You can do this by mail or online.
If you have any questions about the Offer in Compromise program or need help completing your application, you should speak with a tax professional. They can help you determine if you are eligible for an OIC and assist you with the application process.
The Benefits of Offer in Compromise
The Offer in Compromise program can provide taxpayers with several benefits. They include:
The Ability to Settle Their Tax Debt for Less Than the Full Amount Owed
The Offer in Compromise program can be a helpful solution for taxpayers who are struggling to pay their taxes and are unable to do so within a reasonable period. The program allows taxpayers to settle their tax debt for less than the full amount owed, which can make it easier to manage their financial obligations.
In addition, the program can help to reduce the amount of interest and penalties that are owed, making it an even more attractive option for taxpayers who are struggling to pay their taxes.
The Ability to Pay Their Tax Debt Over Time
The ability to pay their tax debt over time can be a lifesaver for taxpayers. Not only does it make it easier to manage their finances, but it also allows them to make payments on their tax debt without incurring additional interest or penalties. The Offer in Compromise program is one way that taxpayers can take advantage of this payment option.
Under the program, taxpayers can work with the IRS to negotiate a payment plan that suits their individual needs and budget. This can be a great relief for taxpayers who are struggling to make ends meet. With an Offer in Compromise, they can get their tax debt under control and start fresh.
The Ability to Avoid Wage Garnishment and Bank Levies
The Offer in Compromise program can help taxpayers to avoid wage garnishment and bank levies. Wage garnishment is when the IRS withholds money from a taxpayer’s paycheck to pay their tax debt. Bank levies are when the IRS seizes funds from a taxpayer’s bank account to pay their tax debt.
Both of these can be harmful to a taxpayer’s financial situation. The Offer in Compromise program can help to prevent these from happening by allowing taxpayers to settle their debt for less than what they owe. This can be a great relief for taxpayers who are struggling to pay their debts, and it can help them to avoid further financial hardship.
The Ability to Reduce Stress and Anxiety
Nobody likes owing money, especially to the government. Tax debt can be a stressful and anxiety-inducing situation. The thought of dealing with the IRS can be daunting, and the fear of being audited can be paralyzing. But there is hope. The Offer in Compromise program can provide relief from this stress and anxiety by resolving the tax debt.
The Offer in Compromise program is an agreement between the taxpayer and the IRS that resolves the tax debt for a lesser amount than what is owed. This program can help reduce stress and anxiety by providing a way to resolve the tax debt. If you are struggling with tax debt, consider talking to a tax professional about the Offer in Compromise program.
They can help you determine if you qualify for the program and help you navigate the process. Don’t let tax debt stress you out. There is help available.
Alternative Options to Offer in Compromise
If you are not eligible for the Offer in Compromise program or if you do not qualify for an OIC, there are other options available to help you resolve your tax debt. These options include:
If you owe taxes and are unable to pay the full amount, don’t despair. The IRS offers a payment plan that allows you to make monthly payments toward your debt. This can be a huge relief, as it can help to lower your stress levels and prevent you from falling behind on your taxes.
To set up a payment plan, you will need to complete an application and submit it to the IRS. Once your application is approved, you will be able to make monthly payments until your tax debt is paid off.
Keep in mind that there may be interest and penalties added to your balance, so it’s important to stay on top of your payments. But with a little planning and effort, you can get your tax debt under control.
Currently Not Collectible Status
If you find yourself unable to pay your taxes, you may be eligible for what is called currently not collectible status. This means that the IRS will temporarily stop trying to collect your tax debt. To qualify, you must prove that you are unable to pay your taxes and do not have the assets to sell to pay your debt.
Additionally, you must prove that you are making an effort to resolve your financial situation. If you can obtain currently not collectible status, the IRS will not take any collection action against you for some time. This can give you the breathing room you need to get back on your feet financially.
If you think you may qualify for currently not collectible status, it is important to speak with a tax professional as soon as possible.
Innocent Spouse Relief
Many married couples file joint tax returns, which means that they are both responsible for the taxes owed. However, there are cases where one spouse may be responsible for the tax debt while the other spouse is innocent. In these cases, the innocent spouse may be eligible for innocent spouse relief, which means that they will not be held liable for their spouse’s tax debt.
To qualify for this relief, you must meet certain requirements, such as demonstrating that you did not know about your spouse’s tax liability and that you would not have benefited from the tax evasion. If you believe you qualify for innocent spouse relief, you should contact the IRS as soon as possible.
Tax Levy Release
A tax levy is a legal action taken by the IRS to collect unpaid taxes. This can include seizing assets, such as your home or car, or garnishing your wages. A tax levy can be a stressful and difficult situation to deal with, but there are options available to help you resolve the issue.
One option is to request a tax levy release. This means that the IRS will agree to not take any collection action against you for some time. This can give you the time you need to catch up on your taxes or sell assets to pay off your debt.
To request a tax levy release, you will need to complete an application and submit it to the IRS. If your application is approved, the IRS will agree to not take any collection action against you for some time.
Ready to Apply for Offer in Compromise?
An IRS offer in compromise is a tool available to taxpayers who are unable to pay their full tax liability. This program allows taxpayers to settle their federal tax debt for less than the total amount owed.
To be eligible for an offer in compromise, you must meet certain requirements including being current on all your taxes and filing all required returns.
Be sure to check out our blog for more articles like this one that provides detailed information on offer in compromise to IRS, other IRS programs and services, and how to pay a tax debt.
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