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An Offer in Compromise (OIC) is the holy grail in tax debt relief. At least that’s what you might think after listening to advertisements on the radio and television years ago. Settling back tax debt for pennies on the dollar? Yes, please!
However, OIC application approvals are as rare as they are popular. The IRS explains, “we generally approve an offer in compromise when the amount you offer represents the most we can expect to collect within a reasonable period of time.”
Applying for an Offer in Compromise
Before the IRS will review your application, they check for the following:
- You’ve filed all your tax returns
- Required estimated payments are up to date (if applicable)
- You’re not currently in an open bankruptcy proceeding
- The IRS has issued a valid extension (if applicable)
- Your tax deposits have been on time for the past two quarters (if you’re an employer)
If you’re eligible, the next step is to put together a compelling application package. The package needs to include the $205 nonrefundable application fee, as well as the first proposed payment on your balance.
The package should also include any information that will support your case. Items like your regular monthly income, anticipated future income, bank and retirement balances, real estate, living expenses, and other debt must be in the package, as well.
There are two framework options for the Offer in Compromise. The first framework is a traditional payment plan. A qualifying payment plan must pay the debt in full within 24 months. An OIC application will not have a fast approval turn-around, so be sure to make your payments as if it was approved until you hear otherwise from the IRS.
The second framework is a lump sum payment. The IRS doesn’t require you to send in the whole amount with the application, however. Only 20 percent needs to be included with the application. The taxpayer has up to five months to deliver the rest of the lump payment.
After you send the application in, the decision is in the hands of the IRS. If the math adds up after their calculations, they approve the application. However, extenuating circumstances may also prompt approval. For example, they may recognize that you wouldn’t be able to pay the debt and cover your living expenses at the same time.
Keep in mind that whether you send in the first payment of a proposed payment plan or 20 percent of your total debt, the IRS will apply it to your back tax debt in the case of a denial.
For the most control over your cash assets, we invite you to contact our firm for a free consultation. We’ll discuss what your application package can look like and whether it’s likely the IRS will approve it.
If you’re not a proper candidate for the offer in compromise, there are other tax debt relief programs that may suit your situation better. We’ll happily discuss all your options with you, free of charge, with no obligation to us. Give us a call at 877.959.0975 for your free consultation and sleep better tonight.
“Offer in Compromise.” Internal Revenue Service, 29 July 2022, https://www.irs.gov/payments/offer-in-compromise.
Parys, Sabrina, and Tina Orem. “IRS Offer in Compromise.” NerdWallet, 25 Aug. 2022, https://www.nerdwallet.com/article/taxes/irs-offer-in-compromise-basics-and-who-qualifies.
“Topic No. 204 Offers in Compromise.” Internal Revenue Service, 3 Nov. 2022, https://www.irs.gov/taxtopics/tc204#:~:text=An%20offer%20in%20compromise%20(OIC,an%20OIC%20in%20most%20cases.