How to Submit an Offer in Compromise With The IRS
You’ve probably seen advertisements on television that promise to settle your tax debt for “pennies on the dollar.” Although it may seem too good to be true, it is possible through a tax relief option known as an Offer in Compromise (OIC). Unfortunately, it’s not a simple process and the majority of OIC applications are rejected. That’s why it’s so important to determine if this type of tax relief is right for you (see below) before moving forward. Once you’re sure that you meet the eligibility requirements, understanding how to submit an Offer in Compromise with the IRS is paramount for your success. Keep reading to learn more!
Is an Offer in Compromise The Right Choice For You?
Deciding whether to submit an Offer in Compromise (OIC) with the IRS is a personal decision that depends on your specific financial circumstances and tax situation. While an OIC can potentially provide relief from your tax debt, it’s crucial to consider the following factors before making a decision:
- Eligibility: Ensure that you meet the IRS eligibility criteria for an OIC. This includes being current with all filing and payment requirements, not being in an open bankruptcy proceeding, and having explored other payment options like an installment agreement.
- Financial situation: Assess your current financial status, including your income, assets, and expenses. The IRS evaluates your ability to pay based on this information. If you have significant assets or a substantial income, the chances of your OIC being accepted may be lower.
- Realistic offer amount: Determine a reasonable offer amount that you can afford to pay. The IRS will review your financial information and assess your “reasonable collection potential” when considering your offer. They will consider your ability to pay the full tax debt over the remaining statute of limitations period.
- Future financial prospects: Consider your future earning potential and financial stability. If you expect a significant increase in income or assets in the near future, it might affect the IRS’s decision on your OIC.
- Professional guidance: Seek advice from a tax professional, such as a tax attorney, enrolled agent, or CPA, who has experience with OICs. They can evaluate your specific circumstances, guide you through the process, and help you determine whether an OIC is a viable option for you.
Remember that the IRS has the discretion to accept or reject an OIC. If your offer is rejected, you may still have other options available to address your tax debt, such as setting up an installment agreement or negotiating a different resolution. It’s crucial to fully understand the implications and potential outcomes before deciding to submit an OIC with the IRS.
How to Submit an Offer In Compromise
If you are confident that an Offer in Compromise is the best solution for your tax issue, there are several things you must do to submit an OIC, including:
1. Complete Form 656
Form 656, Offer in Compromise, is the official document required to submit an OIC. You’ll need to fill out this form accurately and provide supporting documentation, including financial statements, bank statements, and proof of income and expenses.
2. Calculate Your Offer Amount
The offer amount is the sum you are willing to pay to settle your tax debt. This can be a lump sum or periodic payments. The IRS will consider your ability to pay based on your income, assets, and expenses when determining an acceptable offer amount. Form 433-A(OIC) or Form 433-B(OIC) will assist in calculating your reasonable collection potential.
3. Submit The OIC Package
Once you have completed Form 656 and gathered all the required documentation, you need to submit the OIC package to the IRS. Double-check that you have included all the necessary forms and supporting materials. You may want to consider sending it via certified mail with a return receipt to ensure delivery confirmation.
4. Pay The Application Fee And Initial Payment
Along with your OIC package, you must include a $205 non-refundable application fee (unless you qualify for a low-income exception) and an initial payment. The initial payment is typically 20% of your offer amount, but certain exceptions apply. Be sure to follow the instructions on Form 656 regarding the fee and payment.
When Will I Get a Decision?
After you submit your OIC package, the IRS will review your offer, financial information, and supporting documents. They may request additional information if needed. The review process can take several months, so it’s important to be patient during this period. If your offer is accepted, you’ll need to fulfill the terms outlined by the IRS.
It’s important to note that submitting an OIC does not guarantee acceptance, and it can be a complex process. Consider seeking professional assistance from a tax attorney, enrolled agent, or certified public accountant (CPA) who has experience with this type of tax relief. They can help you navigate the process, as well as assist with an appeal, if necessary.
For a free consultation and case review, contact MoneySolver at 855-476-6920 today!