The Ultimate Tax Relief Guide: Offer in Compromise Tax Debt Resolution

If you’ve fallen behind on your taxes, it can be a nightmare if the IRS is threatening wage garnishments. The good news is you can submit an IRS offer in compromise.

What is an Offer in Compromise?

An offer in compromise (OIC) is a way to pay a percentage of the total tax due if you cannot pay your full tax obligations. With this tax debt settlement, you’ll pay the IRS a portion of what’s owed, settling your debt, and they won’t pursue further collection efforts.

What are the Costs and What Forms Do I Need?

The charge to file an offer in compromise is $186 for the application fee and this has to be completed with IRS Form 656 which is the IRS offer in compromise form. You can have the fee waived if you fall below the poverty threshold by filing a claim for an exception to the poverty guideline.

You may also need to submit Form 433-A. This is a Collection Information Statement for Wage Earners. If you are married, the IRS may request data on your spouse even if you’re the only party that owes back taxes. Ensure that you fill out all forms completely.

Proposing a Settlement Amount

Lump Sum Payments

When you submit your application you need to propose a settlement. This can be a 20 percent lump sum payment in advance of your total proposed offer.

For example, if you owe $20,000, but you’re stating you can only pay $5,000 due to economic hardship, you would send 20 percent or $1,000 with your application.

Installment Payments

Another option is installment payments that you will pay consistently until the IRS decides if they will accept your offer. A tax attorney or tax service can help with estimating payment proposals the IRS will accept based on your income, financial hardship due to a sudden illness or job loss, or other factors.

For example, if you owed $20,000 and are estimating that you can pay only $5,000 over 5 years, you would send $139 per month every month until they decide if they will accept your offer.

Who is Eligible for an Offer in Compromise?

To submit an offer in compromise, you must meet one of three conditions:

  • You can show “reasonable doubt to the legitimacy” of the tax liability, i.e., you’ve disputed the charge elsewhere in the past.
  • You can show “doubt to the collectibility” that the IRS can’t collect the debt, i.e., if you have no assets or income.
  • You can show “effective tax administration”, i.e., you’re not disputing it, but it would cause you undue hardship.

Gathering Your Financial Documents

When you submit an OIC application, the IRS will request financial documents that include your bank records, income, asset equity, expenses, and your ability to pay the IRS. While it can be time -consuming to gather the requested documents, try to find everything they ask for to substantiate your claim, i.e., if it was from a sudden medical illness or hospitalization, you may need copies of medical bills, a doctor’s report, or a letter from your doctor.

If Your Offer is Accepted or Rejected

If your offer is accepted, you will continue making your proposed payments. If it’s rejected, you can appeal with the Appeals Office within 30-days.

If your OIC is rejected, you still have to pay your back taxes. Because the interest will keep accruing, it’s important to pay the money you owe the federal government because they will continue to pursue collections for the full amount due.

Conclusion

The offer in compromise allows you to settle your IRS tax liability for less than the full amount due when you have financial conditions where you cannot pay your tax debt. For help with tax debt relief questions, wage garnishment assistance, wage levy removal, and information on filing requirements, reach out to Offer-In-Compromise for tax debt relief assistance today.