TheTaxGuy

In the realm of tax resolution, few options offer as much promise for those burdened with overwhelming tax debt as the IRS Offer in Compromise (OIC). For individuals and businesses drowning in financial obligations, qualifying for an OIC can be a beacon of hope, offering a pathway to a fresh start and financial freedom. Let’s delve into what an Offer in Compromise entails and how one can qualify for this transformative solution.

Understanding the Offer in Compromise:

An Offer in Compromise is a settlement agreement between a taxpayer and the IRS that allows the taxpayer to resolve their tax debt for less than the full amount owed. It’s a powerful tool designed to provide relief to taxpayers who are unable to pay their full tax liability due to financial hardship or exceptional circumstances.

Qualifying Criteria:

While the prospect of settling tax debt for less than what is owed sounds appealing, not everyone qualifies for an Offer in Compromise. The IRS carefully evaluates each case based on specific criteria, including:

1. Ability to Pay: The IRS assesses your ability to pay based on your income, expenses, assets, and overall financial situation. If paying the full amount would cause undue financial hardship, you may qualify for an OIC.
2. Doubt as to Liability: If you believe there’s a genuine dispute regarding the amount of tax owed, such as errors in calculations or misapplied payments, you may qualify for an OIC based on doubt as to liability.
3. Effective Tax Administration: In cases where paying the full tax liability would create an exceptional circumstance, such as significant economic hardship or extraordinary circumstances, the IRS may accept an Offer in Compromise based on effective tax administration.

The Application Process:

Applying for an Offer in Compromise involves a detailed and often complex process. Here’s a simplified overview of the steps involved:

1. Submit Form 656: The first step is to complete and submit Form 656, along with the required documentation, including detailed financial information, to the IRS.
2. Application Fee and Initial Payment: Along with your application, you must submit a non-refundable application fee and an initial payment based on your offer amount. This payment is applied to your tax debt and demonstrates your commitment to resolving your tax obligations.
3. Await IRS Review: Once your application is submitted, the IRS will review your financial information and assess your eligibility for an Offer in Compromise.
4. Negotiation and Approval: If the IRS determines that you qualify for an OIC, they may negotiate the terms of the settlement with you. Upon reaching an agreement, the IRS will approve your Offer in Compromise, and you’ll be required to fulfill the terms of the settlement, which typically include making timely payments.

Seeking Professional Assistance:

Navigating the Offer in Compromise process can be daunting, and the stakes are high. Seeking guidance from a qualified tax professional, such as a tax attorney or enrolled agent, can greatly increase your chances of success. These professionals have the expertise and experience to assess your financial situation, prepare a compelling offer, and negotiate with the IRS on your behalf.

Conclusion:

For individuals and businesses grappling with insurmountable tax debt, an IRS Offer in Compromise represents a lifeline—a chance to break free from the shackles of financial burden and start anew. By understanding the qualifying criteria, navigating the application process diligently, and seeking professional assistance when needed, you can position yourself for success in securing an OIC and reclaiming your financial future.

Joshua E. Scott, EA, NTPI Fellow
Joshua Scott & Associates, LLC
717 Green Valley Road, Suite 200
Greensboro, NC 27408
Ph. (336) 517-7506
Fax (336) 464-2557