When you learn about the amazing possibilities of IRS Offers in Compromise (OIC), you will be overjoyed. Imagine a situation where you and the IRS can come to an agreement to pay less for the settlement of your tax obligations.
What does a compromise offer entail?
An arrangement in which the IRS settles your tax bills for a sum less than the entire amount owing is known as an OIC. This entails presenting the IRS with a case explaining why you are unable to pay the entire amount due and proposing a lesser payment amount in its place. Occasionally, the amount settled is much smaller, particularly if your family is not well off. Although this is an excellent method, keep in mind that the process is neither comfortable nor easy. You can always look for a tax pro near me to get OIC guidance.
An OIC may be approved by the IRS for three different reasons:
- If there is a valid legal dispute about the existence or precise amount of your tax liability.
- In cases when paying the entire amount would result in severe financial hardship or be deemed “unfair and inequitable” because of extraordinary circumstances.
- If the IRS is unsure that it will be able to get the entire amount from you.
Who is qualified?
To be eligible for an OIC, a taxpayer must have filed their tax returns for the previous seven years, have received a bill for at least one tax debt that was mentioned in the offer, have paid all of their estimated taxes for the current year, and, if they are an employer, have paid all of their federal tax deposits for the current quarter as well as the two quarters prior. The IRS also takes into account if you are currently facing bankruptcy.
Things the IRS takes into account when examining compromise offers
The IRS often has stringent requirements before accepting an OIC, including that the taxpayer’s proposed payment equals or surpass the reasonable collection potential (RCP). Taking into account several variables, the RCP serves as a gauge of the taxpayer’s ability to make payments. This involves valuing the taxpayer’s possessions, including real estate, cars, bank accounts, and other things.