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Can an IRS Offer in Compromise Help You?

 

Despite its reputation, the Internal Revenue Service can be flexible in situations where you owe more in taxes than you can feasibly pay. The IRS will consider your unique set of circumstances and your ability to pay in terms of your income, expenses, and asset equity.

From there, the IRS generally approves an offer in compromise submission when the amount of money being offered represents the greatest amount of money that the IRS can expect to collect in a reasonable period. 

How to file an offer in compromise form

The trick is knowing how the system works. First, you have to file an OIC application. Before the IRS accepts the application, the IRS will check to see that you’ve filed all of the required returns and made your estimated payments on time. It’s also important to know that you can't apply for an OIC if you’re involved in open bankruptcy proceedings. 

If you meet those conditions, you can submit your application alongside the $205 application fee. You will also need to make an initial payment, the value of which will depend on your offer and the payment option you choose. 

The two payment options when submitting an OIC form 

Here are your options:

  • Lump sum cash—Submit an initial payment of 20% of the total offer amount with your application. If your offer is accepted, you’ll receive written confirmation from the IRS. The remaining balance that is due on the offer will be paid in five payments or less.
  • Periodic payment—Submit your initial payment with your application. Continue paying the remaining balance in monthly installments while the IRS considers your offer. If it is accepted, continue to pay your amount due until the balance is paid in full.

If you meet the low-income certification guidelines, you won’t have to pay an application fee or an initial payment, nor will you need to make monthly installments while the IRS is evaluating your offer.

For others, while you await a decision regarding your offer, your nonrefundable payments and fees will be applied to the tax liability. You can designate payments to a specific tax year and tax debt. Meanwhile, keep the following implications of your filing in mind:

  • A Notice of Federal Tax Lien may be filed.
  • Other collection activities might be suspended.
  • The legal assessment and collection period is extended.
  • You must continue to make all required payments associated with your offer.
  • You don’t have to make payments on an existing installment agreement.
  • Your offer is automatically accepted if the IRS doesn’t let you know its decision within two years of the IRS receipt date.

What to expect if your OIC form is accepted 

If your offer is accepted, these could be the terms of your situation:

  • You must meet all of the offer terms listed in your form, including filing all required tax returns and making all payments on time.
  • Any refunds due in the calendar year your offer is accepted will be applied to your tax debt.
  • Federal tax liens aren’t released until your offer terms are satisfied.
  • Certain offer information is available for public review by requesting a copy of a public inspection file.

What to do if your OIC form is rejected 

However, if your offer is rejected, keep these details in mind:

  • You have the option to appeal the rejection in 30 days.
  • The IRS Independent Office of Appeals provides additional assistance to people who would like to appeal a rejected offer.

At the end of the day, it’s all a matter of government discretion. The IRS provides fair consideration to each properly submitted OIC application. In recent years, about 40% of OIC submissions have been accepted. So, what can you do to improve the odds that your application will be approved? Work closely with a financial professional by contacting us today. 

 
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Davis & Graves CPA, LLP
Davis & Graves CPA, LLP
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Gresham, OR 97030
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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