An Offer in Compromise (OIC) is a lifeline for taxpayers who are unable to pay their tax debt in full. It’s an agreement between a taxpayer and the Internal Revenue Service (IRS) that settles the taxpayer’s tax liabilities for less than the full amount owed. However, getting an OIC accepted by the IRS is not a walk in the park. The IRS accepts only a fraction of the OIC applications it receives each year. This article provides a roadmap on how to increase your chances of getting your OIC accepted by the IRS.
Get professional help today 1-877-78-TAXES [1-877-788-297].
Understand the OIC Criteria
The IRS considers an OIC based on three grounds: doubt as to liability, doubt as to collectibility, and effective tax administration. Doubt as to liability is when there’s a genuine dispute about the existence or amount of the correct tax debt. Doubt as to collectibility is when the taxpayer’s assets and income are less than the full amount of the tax liability. Effective tax administration is when collecting the full amount of tax would create an economic hardship or would be unfair and inequitable.
Complete the OIC Application Thoroughly
The IRS provides a comprehensive OIC application package, which includes Form 656, Offer in Compromise, and Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B (OIC), Collection Information Statement for Businesses. These forms require detailed information about your financial situation, including your assets, income, expenses, and outstanding tax liabilities. It’s crucial to complete these forms accurately and honestly. Any discrepancies or omissions could lead to your OIC being rejected.
Offer a Reasonable Amount
The IRS will not accept an OIC if it believes that the taxpayer can pay the full amount owed, either as a lump sum or through a payment agreement. The amount you offer should be based on your reasonable collection potential (RCP), which is the IRS’s estimate of your ability to pay over time. Your RCP is calculated based on your assets, income, expenses, and future earning potential. Offering an amount that is less than your RCP will likely result in your OIC being rejected.
Stay in Compliance with Tax Laws
To be eligible for an OIC, you must be in compliance with all filing and payment requirements. This means you must have filed all required tax returns and made all required estimated tax payments for the current year. If you’re a business owner with employees, you must have made all required federal tax deposits for the current quarter and the two preceding quarters. If you’re in an open bankruptcy proceeding, you’re not eligible for an OIC.
Seek Professional Help
Navigating the OIC process can be complex and challenging. It’s often beneficial to seek the help of a tax professional, such as a Certified Public Accountant (CPA), Enrolled Agent (EA), or tax attorney. A tax professional can help you understand the OIC process, prepare your OIC application, and negotiate with the IRS on your behalf.
Be Patient and Persistent
The OIC process can be lengthy, often taking several months to a year. The IRS will thoroughly review your OIC application, and may request additional information or clarification. It’s important to respond to any IRS requests promptly and completely. If your OIC is rejected, you have the right to appeal the decision within 30 days.
To sum, getting an OIC accepted by the IRS requires a thorough understanding of the OIC criteria, a carefully prepared OIC application, a reasonable offer amount, compliance with tax laws, and often the help of a tax professional. It also requires patience and persistence. While there’s no guarantee that your OIC will be accepted, following these steps can significantly increase your chances of success.
Get professional help today 1-877-78-TAXES [1-877-788-297].