Offer In Compromise
An Offer in Compromise (OIC) is a program offered by the IRS that allows taxpayers to settle their tax debt for less than the full amount owed. It provides a potential solution for individuals who are unable to pay their tax liabilities in full. Here’s how the OIC process generally works:
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It’s essential to note that the OIC process can be complex, and the acceptance rate is relatively low. Consulting with a tax professional or seeking assistance from a tax resolution company experienced in OIC applications can help increase your chances of success and guide you through the process effectively.
Before applying for an OIC, you must ensure that you meet the eligibility criteria. This includes filing all required tax returns, making estimated tax payments if applicable, and being in compliance with current tax obligations.
To initiate the OIC process, you need to complete and submit Form 656 (Offer in Compromise) along with the necessary documentation, such as financial statements, income details, and asset information. There is a non-refundable application fee of $205, although certain exceptions may apply for low-income taxpayers.
You have two options for making payment with your OIC application:
- Lump Sum Offer: If you choose this option, you must submit an initial payment of 20% of the total offer amount along with your application. If your offer is accepted, you must pay the remaining balance in five or fewer installments within a short timeframe.
- Periodic Payment Offer: With this option, you submit an initial payment along with your application and continue making monthly payments while the IRS reviews your offer. If your offer is accepted, you must continue making the agreed-upon payments until the total offer amount is paid.
Once your application is submitted, the IRS will review your financial information and assess your ability to pay the full tax debt. This process may take several months, and the IRS may request additional documentation or clarification during the review. The IRS has the discretion to accept, reject, or make a counteroffer on your submitted offer.
If the IRS accepts your offer, you must fulfill all the terms and conditions outlined in the acceptance letter. This includes making the agreed-upon payments promptly and remaining in compliance with your tax obligations for a specified period, typically five years.
