Dealing with outstanding tax debt can be a stressful and overwhelming experience. However, the IRS provides a solution for eligible taxpayers who are unable to pay their tax liabilities in full: the Offer in Compromise (OIC) program. This program allows taxpayers to settle their tax debt for less than the full amount they owe. In this blog post, we will explain what an Offer in Compromise is and provide a step-by-step guide to help you navigate the process on your own.
What is an Offer in Compromise?
An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS that resolves the taxpayer’s tax debt for less than the full amount owed. The IRS considers various factors, such as the taxpayer’s income, expenses, asset equity, and ability to pay, when determining whether to accept an OIC. The primary goal of the OIC program is to reach a reasonable settlement that is in the best interest of both the taxpayer and the government.
Step 1: Determine Your Eligibility
Before applying for an OIC, ensure that you meet the following eligibility requirements:
1. You have filed all required tax returns.
2. You have received a bill for at least one outstanding tax debt included in the OIC.
3. You are not currently in an open bankruptcy proceeding.
Step 2: Evaluate Your Financial Situation
The IRS will only accept an OIC if it believes that the offered amount is the most it can expect to collect within a reasonable period. To assess your financial situation, gather information about your income, expenses, and assets. This will help you determine a reasonable offer amount that the IRS is likely to accept.
Step 3: Complete the Necessary Forms
To submit an OIC, you will need to complete the following forms:
1. Form 656, Offer in Compromise: This form provides the IRS with details about your tax debt, your proposed offer amount, and your chosen payment option.
2. Form 433-A (OIC) or Form 433-B (OIC): These forms provide the IRS with a comprehensive overview of your financial situation, including your income, expenses, assets, and liabilities.
Step 4: Calculate Your Offer Amount
Using the information from your completed financial statement (Form 433-A or Form 433-B), calculate your reasonable collection potential (RCP). Your RCP represents the amount the IRS believes it can collect from you based on your financial situation. To increase the likelihood of your OIC being accepted, your offer amount should be equal to or greater than your RCP.
Step 5: Submit Your Offer
Submit your completed forms, along with the required application fee and initial payment, to the IRS. You can find the appropriate mailing address in the Form 656 instructions. The IRS will review your offer and notify you of its decision.
Step 6: Await the IRS’s Decision
The IRS may take several months to review your OIC. During this time, they may request additional information or documentation. Be prepared to provide any requested information promptly. If the IRS accepts your OIC, you must fulfill the terms of the agreement, such as making the agreed-upon payments. Failure to do so may result in the IRS reinstating the original tax debt.
The Offer in Compromise program can provide relief for taxpayers struggling with tax debt. By following the steps outlined here, you can increase your chances of successfully settling your debt with the IRS on your own. If you are unsure about any aspect of the OIC process or need assistance, we are here to help. Call us at (614) 456-7222.