Dealing with tax debt is stressful, especially because of the aggressive methods IRS tends to employ for collecting the taxes owed to the government.
These range from assessing multiple penalties on late payments, levying your bank accounts, garnishing your wages and sending an IRS Revenue Officer to padlock your business, to forcing your employer to sign into wage garnishments and deducting a sizable percentage of your pay the IRS.
The Benign Side of IRS
After all that I mentioned earlier, can you believe that it is possible to convert the IRS from a tax guzzling machine (bent on eking every last penny of the taxes owed to it) to a benign institution willing to waive off a large portion of your tax debt?
It’s called an Offer in Comprise, and with help from a professional enrolled agent or tax resolution attorney, you can do that!
What is an Offer in Compromise?
An Offer In Compromise (aka OIC) is an agreement between the IRS and the taxpayer. OIC resolves your tax debt. It relies on the IRS’s authority to settle, or ‘compromise’ a taxpayer’s debt by accepting less than the full payment.
All good news, yes, but there are certain circumstances that need to be carefully met.
When does IRS Compromise a Tax Debt?
The IRS can legally compromise your debt in for any of the following three reasons:
Doubt as to Collectibility
If there is doubt that the tax, penalties, and interest assessed on the taxpayer may be collected in the foreseeable future through the normal collection procedures of the IRS. The IRS can further ask the following:
- Will the IRS be able to collect more with forced collection methods compared to accepting the OIC? The IRS is thinking like a business and wants to know which way it can save more money?
- Will it be feasible to let the taxpayer’s financial condition to improve over time and collect the taxes in the future?
- The taxpayer has no or limited assets and negative or limited cash flow and disposable income.
Doubt as to Liability
If doubt exists that the taxpayers assessed tax liability is correct. Reasons for this could range from an error made by the examiner while interpreting the tax code or failed to use all the support and evidence that the taxpayer presented, to the taxpayer having newer documents to prove that the tax amount they were assessed was incorrect.
Effective Tax Administration
In case no doubt exists to the amount that is owed by the taxpayer, but circumstances exists where IRS’s collection of the owed tax will create financial hardships or be deemed as unfair and inequitable to the taxpayer.
If a taxpayer meets any of these three circumstances by creating and substantiating a strong case, the chances of them being eligible to receive an OIC settlement are very high.
Thought the above three circumstances are sufficient for becoming eligible for OIC, the IRS looks at certain other conditions as well. These include:
- Your are not going through bankruptcy
- Your have filed all federal tax returns required for prior years
- You have paid any estimated taxes for current year
- Have provided the proper offer in compromise documentation
Mike Habib, EA, specializes in analyzing taxpayer circumstances and negotiating back tax cases that conclude in the right OIC settlement for our clients. For further information, feel free to contact us 1-877-788-2937.