“Offer in Compromise” – Navigating a Path to Tax Debt Resolution

The Internal Revenue Service (IRS) allows taxpayers to settle their tax debt through an Offer in Compromise (OIC). An OIC is a formal agreement between a taxpayer and the IRS that allows the taxpayer to pay less than the full amount owed.

Eligibility for Offer in Compromise

To be eligible for an OIC, a taxpayer must first file all required tax returns and be current with all tax filings. The IRS will consider the taxpayer’s income, expenses, and assets to determine their ability to pay the tax debt in full. If the taxpayer’s financial situation is such that they cannot pay the tax debt in full, the IRS may accept an OIC.

Types of Offer in Compromise

There are two types of OIC: lump sum and payment plan. A lump sum OIC requires the taxpayer to pay a lump sum payment within five or fewer monthly payments. A payment plan OIC requires the taxpayer to make monthly payments over a longer period, usually 24 to 72 months.

The OIC Process

The process of submitting an OIC starts with the taxpayer submitting a completed Form 656 and a non-refundable application fee. The IRS will then evaluate the taxpayer’s financial situation to determine their ability to pay the tax debt in full. If the IRS determines that the taxpayer is unable to pay the debt in full, they will begin negotiations for an OIC.

Negotiating an Offer in Compromise

Negotiating an OIC can be a complex process, and it is recommended that taxpayers work with a tax professional to help navigate the process. Taxpayers must provide detailed financial information to the IRS, including income, expenses, and assets. The IRS will use this information to determine the taxpayer’s ability to pay the tax debt in full and to determine the terms of the OIC.

Finalizing the Offer in Compromise

Once the terms of the OIC have been agreed upon, the taxpayer must sign and return the OIC agreement and make the agreed-upon payments. The OIC will become final when the taxpayer has fulfilled all the terms of the agreement and the IRS has accepted the full payment.

Conclusion

An Offer in Compromise can provide taxpayers with a path to resolving their tax debt. However, the process can be complex, and taxpayers are strongly advised to work with a tax professional to help navigate the process and ensure the best outcome. With the right guidance, an OIC can provide taxpayers with a fresh start and a resolution to their tax debt.

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