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Offers In Compromise

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The Solution To Tax Debt

Are you drowning in tax debt to the point that you feel there’s no way you could possibly recover?

Do wish someone could wave a magic wand and make that enormous amount you owe disappear?

Well, you’re in luck.

An offer of compromise can allow taxpayers to pay less than the IRS alleges they owe. It is extremely common to resolve tax debt matters in this manner. But an offer in compromise is only one particular manner for the discharging of tax debt.

It’s possible for the IRS to wipe your tax slate clean to give you a fresh start through a program called Offers in Compromise or OIC for short. According to the IRS Data Book, 40.3% of all OIC applications get accepted. 

There are certain situations where making an offer in compromise to the IRS makes total sense. Sometimes taxpayers are facing 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 as to the taxpayer being liable for the debt.

Here at Silver Tax Group, we work with taxpayers who owe a wide range of amounts to the IRS. One thing we’ve learned over the years is 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.

What Is An Offer In Compromise?

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.

This is a common way to resolve large tax debts that are unable to be paid as a result of a financial hardship, or resolving situations involving accounts that are in Currently Not Collectible (CNC) status.

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Is an Offer in Compromise The Right Solution?

An Offer in Compromise It is essentially a compromise reached by both parties that suit both 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. The offer presented by the taxpayer depends on the level of their ability (or lack thereof) to pay off their debt.

With that said, submitting an application for an Offer in Compromise doesn’t automatically mean that it will be accepted. The IRS has to do its due diligence to ascertain whether your existing 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 explicitly define what your financial situation is and back it up with verifiable proof.

This would be in the form of documentation and any other information that you believe might be an asset to your application. The process begins by determining whether you are a suitable candidate for the offer.

Are You Eligible For An Offer In Compromise?

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.

Therefore, before you apply for an OIC, make sure to include a copy of any tax return you’ve filed. This should be within 60 days before the submission of your OIC application.

Next, 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. This is a show of good faith on your part that you’re ready and willing to settle your entire debt.

On the other hand, 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.

If you have the income to pay off the full 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 that is in your interest. Learn more.

Offer in Compromise IRS Exclusions

First off, the IRS doesn’t consider persons or businesses that currently have on-going bankruptcy proceedings.  An Offer in Compromise resolution must take into consideration the outcome of the bankruptcy proceedings.

If you’re in doubt about your business’ or your individual bankruptcy status, get in touch with the Centralized Insolvency Operations Unit.

Before submitting an OIC application, make sure that you don’t have an open audit, 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 has the ability to settle their tax debt in full or via an installment plan. They also won’t consider the offer if you have equity in assets.

What Happens to Tax Refunds If the IRS Accepts an OIC Application?

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? Wrong.

Tax refunds are not considered payment. 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 2019. On filing your returns in 2020, you establish that you’re due for a refund. This refund is applied to your tax debt.

Offer in Compromise in Case of Doubt as to Liability

Often times, you may have legitimate doubt as to the amount the IRS claims you owe in back taxes. In such an instance you make an Offer in Compromise through Doubt as to Liability application.

When making this type of Offer in Compromise, the taxpayer shouldn’t submit it together with an Offer as to Collectibility. Whatever doubts you have with regards to 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 what they owe.

However, prior to the IRS accepting such an offer in compromise, there must be an evaluation of the taxpayer’s financial circumstances. There will need to be an analysis of a taxpayer’s assets, liability, wages and expenses. 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 has the ability to collect the taxes through other means. Those other means can include various agency collection efforts.

How Does a Notice of Federal Lien Affect Your Offer?

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.

Applying for an OIC If You Fail to Remit Trust Fund Taxes

If you’re running a business, trust fund tax refers to money that’s withheld from your employees’ salaries. These include income taxes, Medicare taxes, and Social Security.

As the owner of the business, you will be held personally liable for non-remission of payable taxes. You’re not eligible for an Offer in Compromise until all withheld trust fund taxes are settled.

If you’re not in a position to 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.

Offers in Compromise and IRS Levies

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. However, any proceeds received as a result of the levy remain the property of the IRS.

In light of this, it is therefore important to get in touch with the IRS representative listed on the levy and inform them of your pending offer evaluation. If you already had an installment agreement in place, you don’t have to make the installment payments for the duration that your offer is being considered. In the event that your OIC is rejected, your installment agreement will be reinstated with no penalties or any additional fees.

Additional Considerations for Offers in Compromise

The status quo remains until the determination of your Offer in Compromise application. This means that any interest and penalties on outstanding tax debt will continue to accrue in the meantime.

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 is rule applies for the first five years from the time when your offer was accepted. It takes into account 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 was ordered by a court of law, or tax debt that was reduced as the result of a judicial ruling.

Furthermore, the law makes it mandatory for the IRS to publicize information pertaining to any accepted offers. This allows the public to inspect and review the facts of the OIC.

The OIC Payment Process

When applying for an Offer in Compromise, you have to send in a $186 application fee. However, if you’re a low-income earner as per the Low-Income Certification guidelines, you’re exempt from paying the fee.

Next, you have to choose a payment option through which you’ll send in your offer. The option you decide to go with depends on the total amount of your offer. There are to options available to taxpayers:

  1. Lump sum Cash Payment: This option requires the taxpayer to make a 20% initial payment of the total offer amount. The remainder has to be paid in a maximum of 5 installments from the date the IRS accepts your offer.
  2. Periodic Payments: In this option, the taxpayer has to make the initial payment with the application and pay-off the balance within 6 to 24 months with regards to the proposed terms of the OIC.

Bear in mind that under the Periodic Payments option, while the IRS is evaluating the offer, the taxpayer has to continue making the monthly payments. Failure to do this means that you’ll get your offer returned after once it’s offset your tax liability.

Applicants who are 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 the periodic payments while their offer is in the evaluation process.

The OIC Application Process

Once you’ve figured out which payment options you’ll use the next step is figuring out the application process. You’ll find this information at www.irs.gov/payments/offer-in-compromise. Ensure that your application includes the following:

  • Completed and signed Form 656 – Offer in Compromise Form
  • Completed and signed Form 433-A – Collection Information Statement for Wage Earners and Self Employed Individuals plus supporting documentation
  • Completed and signed Form 433-B – Collection Information Statement for Businesses plus supporting documentation
  • Application fee amounting to $186 unless you’re a low-income earner
  • Initial offer payment unless you’re a low-income earner

If the forms listed above are not signed and fully completed, your offer will be returned to you. Attach any and all 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.

Questions About the OIC Application Process?

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What if Your Offer in Compromise was Rejected?

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.

Find Out More At No Cost

There are circumstances when the IRS is wrong on how much one owes. The taxpayer may owe less, or they may owe nothing at all. In such cases, a taxpayer may then offer an offer in compromise. It does not matter whether the taxpayer can or cannot pay the debt in these circumstances.

Such cases may hinge upon a disagreement of the law or disagreement regarding the amount owed. Through an offer in compromise, the taxpayer and the IRS may then negotiate regarding what the taxpayer actually owes. It’s useful to have legal advice from an experienced tax attorney explain the likely outcome regarding an offer in compromise. Understanding all of 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 need to go into it with an open mind. You may do everything right, but end up with a rejected offer. It happens to people all the time 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.

If you choose to resolve your issues, contact us for a free case evaluation. 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. We provide tax defense services across the nation.

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