What Is an Offer in Compromise Assistance?
This IRS-instituted program states that if a taxpayer cannot afford to pay back the taxes they owe and don’t have any significant assets, the IRS may accept an offer in compromise to recoup as much as it can — even if that means settling for less than the actual tax bill.
Whether the IRS approves an offer in compromise depends on various factors, including a taxpayer’s:
- Ability to pay their owed taxes
- Expenses
- Total income
- Asset equity
Who Qualifies for an OIC?
Not everyone gets approved for an OIC. To qualify, you must have filed all your tax returns and made all estimated payments that were required for the year. If you’re a business owner, you’re also required to have made all federal tax deposits for the current quarter.
Even if you’ve successfully completed these steps, the IRS still may not accept your request for an OIC. Usually, the IRS won’t approve an offer in compromise unless the amount the taxpayer offers is equal to or larger than the reasonable collection potential (RCP), the amount the IRS estimates that the individual is able to pay taking into account the sum of their assets and
anticipated future income.
There are three primary cases where the IRS is likely to accept an OIC:
- Doubt as to liability: There is a legitimate dispute about the amount of your tax balance or whether you owe taxes at all.
- Effective tax administration: There is no uncertainty as to whether you legally owe taxes, meaning the IRS could legally collect what you owe if doing so would not create economic hardship.
- Doubt as to collectability: If your income and assets equal less than the amount of the full tax liability, your taxes owed may not be collectible.
What Is the Process Like?
Unfortunately, it’s a complicated process. First, the IRS will look closely at the taxpayer’s financial situation to determine what can be paid now and in the future and requires extensive paperwork including significant financial records, strict regulations, and more.
It’s also not a fast process. Offers in compromise can take years to be received, reviewed, and accepted, even if you qualify immediately.
One of our offer-in-compromise attorneys can help you throughout the process so you can provide the necessary records and ensure your offer is reviewed by the IRS.