Taxpayers who face high levels of tax debt have options to help manage this bill. The offer in compromise (OIC) is one example. This option involves a taxpayer offering to settle a tax bill for less than owed. The Internal Revenue Service (IRS) may accept this offer and forgive the remaining balance if the taxpayer can establish that the offered amount is all that they can reasonably afford to pay.
Sounds relatively easy. Unfortunately, the reality is much more difficult to navigate.
Who can use an OIC?
Taxpayers who are not going through bankruptcy, have filed all returns, and made previous estimated payments are generally eligible for an OIC.
Does this really work?
Sometimes. It is important to note that the IRS is very particular when it reviews an OIC application. The agency will review all eligibility requirements. A failure to meet these requirements will mean you are not eligible to move forward with an OIC.
Tips that can help to better ensure approval include:
- Check eligibility requirements. As noted above it is important to review the IRS’ requirements for this option before moving forward. If, for example, you have not filed returns for previous tax years, you are not likely eligible for this option.
- Review asset information. One of the key reasons the IRS will accept less than owed is if there is doubt they could collect any more than offered. Providing clear information that supports the proposed offer is all that you can afford can help the IRS to agree with your proposal. The IRS will check the information you provide, so make sure it is accurate.
- Fill out the forms. It is important work with an experienced attorney to ensure the forms are filled out properly. Errors can result in delays or a denial.
Another tip that can increase the likelihood of success is the use of legal counsel. An attorney experienced in this niche area of tax law can review your situation and provide guidance on how to calculate a reasonable offer and discuss this, as well as other, options for tax relief.