IRS Offer In Compromise: What You Need to Know

Orlando R. Dizon

·May 22, 2024

·5 min read

IRS Offer In Compromise: What You Need to Know Right Now — Image Source: unsplash

The IRS Offer in Compromise (OIC) program provides a unique opportunity for taxpayers to settle their tax debt for less than the full amount owed. Understanding The Elusive Guidelines For An IRS Offer In Compromise and prerequisites is crucial as recent policy changes have made it more challenging to qualify for this option. Exploring alternative solutions is essential, especially with the acceptance rate for an IRS Offer in Compromise being only around 30%.

Understanding The Elusive Guidelines For An IRS Offer In Compromise

When considering an IRS Offer in Compromise, it is vital to grasp the intricate guidelines that govern this program. The eligibility criteria play a pivotal role in determining who can benefit from this opportunity.

Eligibility Criteria

To qualify for an IRS Offer in Compromise, individuals must demonstrate Financial Hardship or prove that there is Doubt as to Collectability. These two aspects are fundamental in showcasing the need for a compromised settlement with the IRS.

Application Process

The application process for an IRS Offer in Compromise involves meticulous attention to detail. Submitting the necessary documentation accurately and promptly is crucial for a successful application. Understanding the steps involved in the submission process can significantly impact the outcome of your offer.

Acceptance and Rejection

The decision-making process behind accepting or rejecting an offer is multifaceted. Various factors influence this critical decision, including financial circumstances and compliance history. If your offer faces rejection, knowing how to navigate the appeal process becomes essential.

Prerequisites for an IRS Offer In Compromise

When preparing to submit an IRS Offer in Compromise, certain prerequisites must be met to enhance the chances of acceptance. Understanding these requirements is crucial for a successful application process.

Previous Offers

Same Tax Period Requirement

To qualify for an IRS Offer in Compromise, it is essential that any previous offers made by the taxpayer relate to the same tax period. This requirement ensures consistency and transparency in the negotiation process with the IRS.

No State Offer in Compromise

Another prerequisite involves ensuring that there have been no state-level offers in compromise for prior tax debts. This condition aligns with the IRS guidelines and demonstrates a clear financial history to support the current offer submission.

Financial Disclosure

Income Verification

One critical aspect of the IRS Offer in Compromise process is income verification. The IRS will assess your financial situation based on documented proof of income sources. Providing accurate and detailed income information is vital to substantiate your offer amount.

Asset Evaluation

In addition to income verification, evaluating your assets plays a significant role in determining your eligibility for an offer in compromise. The IRS will consider any valuable assets that could potentially be liquidated to contribute towards settling your tax debt. Proper assessment and disclosure of assets are key factors in presenting a comprehensive offer.

Exploring Alternative Options

Installment Agreements

Monthly Payment Plans

Taxpayers facing difficulties with a lump-sum payment can opt for IRS installment agreements. These plans allow individuals to pay off their tax debts over an extended period, typically up to six years. The IRS offers flexibility in setting up monthly payment plans, making it easier for taxpayers to manage their financial obligations.

Benefits and Drawbacks

Flexible Payment Terms: Taxpayers have the convenience of spreading out their payments over an extended period, reducing the immediate financial burden.
Avoiding Penalties: By adhering to the agreed-upon payment schedule, taxpayers can avoid additional penalties or interest charges.
Financial Discipline: Regular monthly payments instill financial discipline and help individuals stay on track with their tax obligations.

However, there are drawbacks to consider:

Accrued Interest: While installment agreements provide relief in paying off tax debt gradually, interest continues to accrue on the remaining balance.
Longer Repayment Period: Extending the repayment period may result in paying more in total due to accrued interest over time.

Currently Not Collectible Status

Temporary Relief

For taxpayers experiencing significant financial hardship, obtaining a "Currently Not Collectible" status from the IRS offers temporary relief from collection activities. This status indicates that the taxpayer is unable to meet their basic living expenses while paying off tax debt. It provides breathing room by suspending collection efforts temporarily.

Qualification Criteria

To qualify for Currently Not Collectible status, individuals must demonstrate severe financial hardship that prevents them from meeting both essential living expenses and tax obligations. The IRS evaluates income, assets, and necessary expenses to determine eligibility for this temporary relief option.

Bankruptcy

Last Resort Option

In extreme cases where all other options have been exhausted, filing for bankruptcy may be considered as a last resort for resolving tax debt issues. Bankruptcy provides a legal process for individuals or businesses to eliminate or repay debts under the protection of the federal bankruptcy court.

Impact on Credit

While bankruptcy offers a fresh start by discharging certain debts, it also has long-term consequences on one's credit score. A bankruptcy filing remains on credit reports for several years and can affect future loan approvals or interest rates.

Navigating through these alternative options requires careful consideration of individual circumstances and financial goals. Each choice comes with its implications and benefits, emphasizing the importance of seeking professional advice before making a decision regarding tax debt resolution strategies.

Contact your Tax Resolution Attorney
Secure your financial peace of mind today. For more information, please visit https://taxresolution.esq.

Attorney Orlando R. Dizon | Tax Resolution, Esq | Houston Tax Resolution Attorneys