Are you facing a mountain of unpaid tax debts? If so, you might consider working with a tax attorney to apply for an offer in compromise (OIC) with the IRS.
This tax settlement option allows debt holders and the IRS to agree on a manageable payment plan to resolve tax debt debts. If the IRS accepts your offer in compromise, it means that they agree that your proposed payment plan is appropriate.
Keep reading to learn more about what is an IRS offer in compromise and how you can qualify for one.
How Does It Work?
An IRS offer in compromise (OIC) is a way to resolve your tax debt with the IRS in a manageable lump sum. In some cases, this includes an IRS debt forgiveness program. Through it, the taxpayer agrees to pay a fixed sum. It is usually less than the full amount owed.
The IRS agrees to accept that payment as a full settlement of the liability. Even though you might qualify for an OIC, you must still be able to prove that it would be in the best interest of both you and the IRS to accept your offer. The agency will weigh the following:
- your assets
- sources of income
- living expenses
- financial obligations
It also includes any potential taxes you may owe in the future when determining whether it is best to accept or reject your offer.
What Types of IRS OIC Are Available?
There are a few types of OIC available. The tax liability that is eligible for an OIC may be settled based on “doubt as to collectability.” A doubt as to collectability offer is a settlement of IRS tax debt when the taxpayer cannot pay the full amount due.
A “doubt as to liability” offer is when a taxpayer disputes the amount or legality of the liability, and an effective tax administration (ETA) offer is made when the IRS determines that a taxpayer is unable to pay the full amount due. Still, compliance with the tax laws is being done.
All offers require supporting documentation, along with non-refundable initial payments upon the offer’s acceptance.
Is an IRS OIC Right for Everyone?
An IRS OIC could be the best option for those who owe more than they can possibly pay. The IRS evaluates each OIC application on a case-by-case basis.
That said, it may still be the best option for some taxpayers who meet the criteria. It is important to note, however, that not everyone qualifies for an IRS OIC. Even though it offers significant tax relief, it is still not the right solution for everyone.
Taxpayers should consult with a tax expert to find out if they are eligible and if an offer in compromise is the right choice.
Information About What an IRS Offer In Compromise Is
An IRS offer in compromise can help taxpayers reduce their debt in exchange for a smaller payment. It’s not guaranteed. It also requires paperwork. However, the OIC is an avenue for giving taxpayers the financial relief they need.
If you are considering an OIC, look for an enrolled agent, tax attorney, or CPA for more information to see if you qualify.
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