Pay Less to The IRS With an Offer in Compromise
Get effective relief from your tax burden.
Get effective relief from your tax burden.
Are you struggling with tax debt?
Are you looking for a way to resolve the issue and get your finances back on track?
An Offer in Compromise may be an optimal solution.
An offer in compromise is an agreement between you and the IRS that allows you to settle your tax debts for less than you owe. Essentially, it’s a compromise reached by both parties that suit the IRS and the taxpayer.
It’s a win-win since it offers the taxpayer a chance to get rid of their tax debt and start on a new path of financial freedom, and Uncle Sam gets his money.
This is a common way to resolve large tax debts that cannot be paid due to financial hardship or resolving situations involving accounts that are in Currently Not Collectible (CNC) status.
It’s also an effective tool to resolve tax debt matters without going through costly litigation or possibly facing jail time.
It is extremely common to resolve tax debt matters through an OIC. According to the IRS Data Book, 40.3% of all OIC applications get accepted. Therefore, when filing an OIC, it’s important to understand the criteria set by the IRS. This is why it’s so important to work with a professional.
Here at Silver Tax Group, we work with taxpayers who owe a wide range of amounts to the IRS. We’ve learned over the years that every situation is different, and there is no magic bullet. However, an offer in compromise often represents a positive solution for people looking to settle their tax debts and move on with their lives.
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Yes, an IRS Offer in Compromise (OIC) could be an excellent idea for anyone facing significant tax debt or financial hardship. There are no drawbacks to trying. It is essentially an agreement between a taxpayer and the Internal Revenue Service (IRS) to settle tax debt for less than the entire balance owed. This alternative may allow taxpayers to reduce the amount of tax they owe, pay off their debt faster, and potentially avoid further collection action from the IRS.
In certain situations, making an offer in compromise to the IRS makes total sense. For example, sometimes taxpayers face financial hardship that makes paying off taxes owed difficult. This can mean that accounts are in what’s called Currently Not Collectible status. There may also be certain circumstances where there is doubt about the taxpayer being liable for the debt. Therefore, the offer presented by the taxpayer depends on the level of their ability (or lack thereof) to pay off their debt.
Applying for an Offer in Compromise doesn’t automatically mean it will be accepted. The IRS has to do its due diligence to ascertain whether your circumstances deem you incapable of settling what you owe in taxes.
It looks into your current income, expenses, any assets you own, and any future earning potential you may have before an offer can be accepted. You’ll have to define your financial situation and back it up with verifiable proof.
This would be in the form of documentation and any other information you believe might be an asset to your application. Then, the process begins by determining whether you are a suitable candidate for the offer.
To qualify for an OIC, taxpayers must demonstrate that they are unable to pay their entire tax liability due to economic hardship; that paying the taxes would create financial problems; or if it can successfully be argued that paying more than was initially agreed upon would represent a “hardship” on behalf of the taxpayer. Before the IRS can consider your application, you must ensure that you’ve filed all your returns. If you fail to do this, any payment you send with your offer will settle your existing tax debt.
The IRS then reverts your application fees and any outstanding balances on your offer. Their decision is final and leaves no room to launch an appeal.
Therefore, before applying for an OIC, include a copy of any tax return you’ve filed. This should be within 60 days before the submission of your OIC application.
If you have the income to pay off the total amount, you may not qualify to reach an offer in compromise with the IRS. However, we can likely resolve your tax debts through – the IRS Fresh Start Program or a settlement agreement in your interest. Learn more.
If you’re an individual taxpayer, you should have at least one tax bill included in your offer and settle all your tax obligations for the current year. Again, this is a show of good faith that you’re ready and willing to settle your debt.
If you’re a business owner, aside from including at least one tax bill, you should settle all your business’ tax deposits for the current quarter. So, before you can even be considered for an IRS Offer in Compromise, ensure that you have filed all the returns you’re legally required to file.
When considering an Offer in Compromise (OIC) with the Internal Revenue Service (IRS), it is important to understand what you should expect and how much you should offer. The IRS uses a few different formulas when determining an offer amount, depending on the type of taxes involved:
One of the most widely used methods is the “Doubt as to Collectibility” formula. This bases the offer on the taxpayer’s current financial situation and ability to pay their debt in full. The formula involves taking the net realizable equity (NRE), which is defined as assets minus liabilities, and subtracting out an allowance for basic living expenses such as housing, food, transportation, and other necessities. If no assets are available or if all of them are exempt from levy by law, then this formula would not work.
The “Asset Depletion Model” model looks at your total assets, subtracts out any exempt assets such as a retirement account or home equity, and considers how long it would take for these assets to pay off your tax debt if liquidated. It then calculates an appropriate offer amount based on that information. In addition to calculating what you can offer using the Asset Depletion model, the IRS also considers other factors when assessing an offer amount. These include your ability to pay, income and expenses associated with earning that income, and any reasonable collection potential outside of the assets already determined under Asset Depletion. This means looking at any property you own or those connected with you that could be used as collateral for repayment of tax debt.
The following formula is called “Ability to Pay” and looks at past and predicted future income streams when calculating how much a taxpayer might be able to offer. When using this calculation, previous taxes owed are considered in addition to any new taxes owed from recent years. The resulting figure is compared against any available assets or future income streams that the IRS could garnish or seize to satisfy the debt obligation.
The last formula many taxpayers use is “Equivalent Lump Sum Offer,” which considers both current and future tax liabilities.
It determines how much cash must be offered for creditors to accept a settlement agreement. Recent earnings are considered alongside estimated future earnings, if any exist, to determine this amount. A payment plan may also be set up over time; however, most prefer lump sum payments as it relieves them of their entire obligation at once rather than being placed on a prolonged repayment plan.
First, the IRS doesn’t consider persons or businesses with ongoing bankruptcy proceedings. An Offer in Compromise resolution must consider the bankruptcy proceedings’ outcome.
If you doubt your business or bankruptcy status, contact the Centralized Insolvency Operations Unit.
Before submitting an OIC application, make sure you don’t have an open audit, an injured spouse, or an innocent spouse claim that hasn’t been concluded. The IRS will not consider it until those issues are resolved.
The IRS also rejects applications for OIC if the applicant can settle their tax debt in full or via an installment plan. They also won’t consider the offer if you have a certain amount of equity in assets.
You may often have legitimate doubt about the amount the IRS claims you owe in back taxes. Therefore, you make an Offer in Compromise through Doubt regarding the Liability application in such an instance.
When making this type of Offer in Compromise, the taxpayer shouldn’t submit it with an Offer as to Collectibility. Whatever doubts you have about what you owe in tax liability must be resolved before you send the IRS and OIC based on your ability to pay.
Taxpayers most often submit an office in compromise to the IRS under circumstances where taxpayers would face hardship in paying back the debt. In such instances, the taxpayer generally requests to pay less than they owe.
However, before the IRS accepts such an offer in compromise, there must be an evaluation of the taxpayer’s financial circumstances. An analysis of a taxpayer’s assets, liability, wages, and expenses will need to be analyzed. The IRS will attempt to establish a “reasonable collection potential (RCP).” This would be an amount that the IRS could reasonably believe they would collect if taking the matter through the litigation process.
The IRS will not automatically accept such an offer in compromise – especially if the agency can collect the taxes through other means. Those other means can include various agency collection efforts.
Submitting an OIC requires detailed documentation backed up by evidence showing why it should be accepted. This can include information on income and assets and details about necessary expenses such as medical bills and housing costs. Without these supporting documents, your request may not be accepted by the IRS, which means additional fees will become due from missed payments or interest accrued from overdue taxes.
Trust fund tax refers to the money withheld from your employees’ salaries if you’re running a business. These include income taxes, Medicare taxes, and Social Security.
You will be liable for the non-remission of payable taxes as the business owner. Therefore, you’re not eligible for an Offer in Compromise until all withheld trust fund taxes are settled.
If you cannot do so, an OIC will only be considered once the Trust Fund Recovery Penalty resolution is reached. If you’re not the business owner but the victim of such a process, then the Trust Fund Recovery Penalty doesn’t apply to you when submitting an offer.
In the case where the IRS had imposed a levy on your assets, this directive stands until such a time when an IRS official acknowledges that you have an OIC that is pending. After that, however, any proceeds received as a result of the levy remain the property of the IRS.
Therefore, it is essential to get in touch with the IRS representative listed on the levy and inform them of your pending offer evaluation. If you already have an installment agreement, you don’t have to make installments for the duration your offer is being considered. If your OIC is rejected, your installment agreement will be reinstated with no penalties or additional fees.
The status quo remains until the determination of your Offer in Compromise application. Any interest and penalties on outstanding tax debt will continue to accrue.
The same applies when it comes to filing your taxes. You’re still legally obligated to pay all the required taxes due. Failure to comply with these requirements automatically disqualifies you from the offer.
Conversely, even if the IRS accepts your offer, your current filing status and payment obligations still have to be up-to-date. This rule applies for the first five years when your offer is accepted. After that, it considers any extensions that may have been granted.
If the IRS forwards your case to the Department of Justice, it cannot accept an offer at that point. Additionally, the IRS cannot accept an offer that includes any restitution amount that a court of law ordered or tax debt that was reduced due to a judicial ruling.
Furthermore, the law makes it mandatory for the IRS to publicize information about accepted offers. This allows the public to inspect and review the facts of the OIC.
Once you’ve figured out which payment options you’ll use, the next step is the application process. You’ll find this information at www.irs.gov/payments/offer-in-compromise. Ensure that your application includes the following:
If the forms listed above are not signed and fully completed, your offer will be returned to you. Attach any supporting documents you deem necessary to get you a favorable outcome. If the IRS doesn’t make a determination of your application within a period of two years, your OIC is automatically accepted.
When applying for an Offer in Compromise, you must send a $186 application fee. However, as you’re Low-Income Certification guidelines, you’re exempt from paying the fyou’reyou’re a low-income earner.
Next, you must choose a payment option to send your offer. The option you decide to go with depends on the total amount of your offer. There are two options available to taxpayers:
Bear in mind that under the Periodic Payments option, while the IRS evaluates the offer, the taxpayer must continue making the monthly payments. Failure to do this means you’ll get your offer returned, offsetting your tax liability.
Applicants classified as low-income earners don’t have to send in the initial payment with the offer. They’re also spared from having to make periodic payments while their offer is in the evaluation process.
There are circumstances when the IRS is wrong about how much one owes. For example, the taxpayer may owe less, or they may owe nothing at all. Whether the taxpayer can or cannot pay the debt in these circumstances does not matter.
Such cases may hinge upon a dispute of the law or the amount owed. Through an offer in compromise, the taxpayer and the IRS may then negotiate regarding what the taxpayer actually owes. It’s helpful to have legal advice from an experienced tax attorney explain the likely outcome regarding an offer in compromise. Understanding your options in advance can lead to you making the right choices.
While Offers in Compromise might provide the perfect ending to a tax debt nightmare, you must go into it with an open mind. You may do everything right but end up with a rejected offer. Unfortunately, it happens to people who approach the process without legal representation.
The good news? Recent years have seen a rise in the number of OIC applications accepted. So, it doesn’t hurt to give us a call and try!
You can continue living with the threats of the IRS and worrying about your financial future, or you can talk to an experienced tax defense lawyer about your options for resolving the situation. The choice is yours.
Contact us for a free case evaluation if you choose to resolve your issues. We can help you find the right solution for your situation, whether that is an offer in compromise or something else. We offer affordable payment options, including financing, so you have nothing to lose. In addition, we provide tax defense services across the nation.
An offer in compromise is an agreement that allows a debtor to settle their tax debts for less than they owe.
It is an arrangement between you and the IRS where you’re allowed to pay off your tax debt at a reduced dollar amount."
Before the IRS can consider your application, you need to ensure that you’ve filed all your returns. If you fail to do this, any payment you sent with your offer will go towards settling your existing tax debt. The IRS then revert your application fee and any outstanding balance on your offer. Their decision is final and leaves no room to launch an appeal.
The process of submitting an offer in compromise (OIC) to the IRS can take anywhere from six months to two years or more. The length of time is dependent on the complexity of the case and how quickly all necessary documents are gathered and submitted. A taxpayer must be patient, as it can take several weeks just for a determination letter to be issued.
Getting your offer rejected is disheartening, to say the least. However, you do have options available to you when this happens.
First, you can appeal the decision by filing and submitting Form 13711 – Request for Appeal of Offer in Compromise. You’ll need to do this within 30 days of the rejection.
Before you appeal they recommend that you use the online self-help tool. This will help you determine whether or not you should pursue the process.
If you have a tax refund due, you might think that it can be channeled towards your offer. After all, it makes perfect sense since it was a payment that you were going to receive anyway, right? Well, tax refunds are not considered payments. That would be like taking money out of one pocket and putting it in the other. Here’s how it goes. Suppose the IRS accepts your offer in 2023. On filing your returns in 2024, you establish that you’re due for a refund. This refund is applied to your tax debt.
A tax lien is a legal claim on your current and future property that is created when you fail to settle your tax bill. It basically attaches all your property. It's one of the worst ways to get in trouble with the IRS.
A Notice of Federal Tax Lien or NFTL for short is a public notice given to a taxpayer's creditors. It states that the federal IRS claim on assets takes precedence over all the other outstanding claims that may exist.
The IRS is within its rights to file an NFTL while your application for an Offer in Compromise is being considered. However, in the event that this happens, a taxpayer can file an appeal under the Collection Appeal Program (CAP) before their property is attached. If the process is already underway or has already begun, they can request a Collection Due Process hearing.
We understand how difficult it can be when faced with a huge tax bill – one that seems impossible to repay – but our team is here to help make sure you don’t miss any potential opportunities for relief from mounting debts. With us handling your case, you’ll remain informed throughout each stage of negotiation until we reach a satisfactory outcome for both parties involved: You’ll never feel alone or helpless dealing with this challenging situation because we’re here every step of the way!
Let's work together to lessen your tax burden.
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