IRS Offer In Compromise
An Offer in Compromise is a major relief program for taxpayers who want to negotiate and settle their outstanding issues with the IRS for less than the amount originally owed. The goal of an Offer in Compromise is for both parties, the taxpayer and the federal government, to come to terms in both their interests. The program aims to promote open acceptance of any and all subsequent payment and filing requirements. The qualifying conditions to apply or be eligible for an Offer In Compromise (OIC) can seem complicated. Our expert tax attorneys will help you understand the policies, application process, and eligibility criteria for an Offer in Compromise.
We make sure our clients get all the benefits possible under tax laws. With our extensive experience in tax tax preparation, audit representation, resolution, and litigation – we offer our clients, both individual and corporate taxpayers, the best solution.
California Offer in Compromise
An Offer in Compromise in California is an agreement between the taxpayer and the California Franchise Tax Board (FTB) to reduce tax bills based on certain financial criteria. Our tax lawyers are based in California and are well-versed with the state’s tax laws. With our experience, we help clients who are unable to pay their tax liability by applying for the California Offer in Compromise on their behalf. We study our clients’ situations and circumstances, like their incomes, expenses, assets, and overall ability to pay.
Offer in Compromise Form
Click here for the IRS Offer in Compromise form used by tax professionals. An IRS Offer in Compromise form is usually approved when the amount that is offered represents the most the IRS can collect within a reasonable period of time. Before submitting an Offer in Compromise, it’s a good idea to look into all of the other payment options. An Offer in Compromise isn’t necessarily for everyone. You can always choose to hire a tax professional to help you file an offer.
Offer in Compromise Qualifications
In order to be considered for an Offer in Compromise settlement, a taxpayer must fall under at least one of these three conditions:
- Doubt as to Liability – Taxpayer must prove they haven’t had the chance to contest their tax liability.
- Doubt as to Collectibility – Taxpayer must prove they will never be able to pay off their tax liability.
- Effective Tax Administration – Taxpayer doesn’t contest their liability, however they can prove under special circumstances that tax collection would cause “economic hardship” or simply be unfair.
How Do I Submit An Offer?
We help you submit your offer as per the Offer in Compromise Booklet, Form 656-B. We create a complete package that includes all verified documents required by the IRS. Some of the documents include:
- A Form 433-A (OIC) (Individuals) or 433-B (OIC) (businesses)
- Form 656(s) individual and business tax issues
- A $186 non-refundable application fee
- Non-refundable initial payment for each form
How Does The Entire Offer In Compromise Process Work?
While the IRS evaluates your application for Offer in Compromise, your non-refundable payments and fees will be applied to your tax liability and any other collection activities may be suspended. A notice of federal tax lien may also be applied.
We will assist you in making all the payments that are associated with your offer to avoid delays. The legal assessment and collection period may also be extended. You will not be required to make any payments on an existing installment agreement. If the IRS doesn’t determine within two years of receipt, we confirm that your offer has been accepted.
What Happens When My Offer Is Accepted?
When your offer is accepted, we will take the next step and verify that you meet all the terms listed in Form 656. We will help you apply all refunds due in the calendar year to your tax issue. We ensure that all offer terms are satisfied and specific information is publicly available to release federal tax liens.
Payment Options
Prior to or upon receiving approval, your initial payment can vary depending on your offer and selected payment option. Your two payment options will be:
- Lump Sum Cash – Include an initial payment of 20% of the total offer amount along with your application and application fee. Upon your offer being accepted, you will pay off the remaining tax balance in five,or less, additional payments.
- Monthly Payments – Submit your initial payment along with your application. Incrementally pay off the tax balance in monthly payments as you wait to hear back from the IRS regarding your offer. Upon the IRS accepting your offer, you will continue to make monthly payments until the issue is resolved.
Offer in Compromise applicants who meet the Low Income Certification guidelines won’t have to cover application fees or the initial 20% payment. Monthly payment won’t be required until the Offer in Compromise has completed its evaluation process.
What Happens If My Offer Is Rejected?
Upon hearing back from the IRS that your Offer in Compromise was rejected, the taxpayer maintains the right to appeal the rejection within 30 days using the Request for Appeal of Offer in Compromise, Form 13711. Once submitted, your attorney at Victory Tax Lawyers, alongside the IRS Independent Office of Appeals, will provide you with any further assistance regarding the appeal of your rejected Offer in Compromise.
What Impact does an Offer in Compromise have on My Credit Score?
Upon having an OIC accepted by the IRS, the implications on one’s credit score might become a paramount concern. Generally, the IRS does not directly report your OIC to credit bureaus. However, tax liens, often associated with the debts being compromised under an OIC, are public records. Once the OIC is approved and the agreed-upon amount is paid, the IRS will release the tax lien, updating the public record. The release of a tax lien is typically reported to the credit bureaus and may remain on the credit report for up to seven years, potentially affecting the credit score and borrowing capabilities.
How Does an Offer in Compromise Affect Public Record Entries?
Once an OIC is accepted, the details of the agreement, including the taxpayer’s name, city, state, ZIP code, tax amount and terms of settlement, become a matter of public record. This means the information is accessible to anyone who opts to search for it, including credit agencies, lending institutions, or even general public individuals, which can sometimes be a personal concern for the taxpayer.
What Role Does an Offer in Compromise Have in Future Tax Filings?
When an OIC is settled, taxpayers must adhere to strict compliance in their tax filings and payments for the subsequent five years. Failing to adhere to the stringent compliance terms could result in the default of the agreement, where the IRS can proceed to collect the original amount owed minus any amounts already paid under the terms of the OIC. It is crucial that individuals remain exceptionally meticulous and diligent in adhering to tax obligations post-acceptance of an OIC to prevent negating the benefits procured from the settlement.
Can an Offer in Compromise Stop a Levy or Garnishment?
Suspending Collection Actions
Once an OIC is submitted and is pending approval, the IRS generally suspends levy actions. This hiatus lasts until the offer is accepted, rejected, or withdrawn, providing a temporary shield against these formidable financial impacts. However, it is imperative to note that the submission of an OIC does not automatically halt wage garnishments. Specific actions or agreements must be reached to potentially suspend garnishments while an OIC is under review.
It’s a delicate balance for taxpayers to both navigate the submission of an OIC and manage existing or impending levies and garnishments. Understanding the procedural intricacies and timelines is paramount to ensure that the offer is submitted judiciously, maximizing the potential for suspension of aggressive collection actions.
In scenarios where the OIC is approved, not only is the taxpayer alleviated from the looming sword of the original tax debt, but they also circumvent further levies related to that particular debt. The approved OIC amount becomes the new obligation, which, when satisfied, nullifies the debt and associated collection actions.
OIC Landscape for Businesses
Businesses, whether corporations, LLCs, or partnerships, can find themselves embroiled in tax debts that permeate through their operational and financial structures. Engaging with the OIC program can open avenues to resolve these debts, but the considerations and implications differ distinctly from individual taxpayers. Business assets, ongoing liabilities, payroll considerations, and operational costs become pivotal players in the narrative of structuring an OIC.
Determining Eligibility and Calculations
The OIC for a business is predicated on its ability to pay, which is calculated considering numerous variables, including:
- Assets: Physical, financial, and intangible assets.
- Liabilities: Outstanding debts and operational expenses.
- Equity: Ownership interests in assets.
- Future Income: Calculated based on projections and current contracts.
The intersection of these elements assembles a financial picture that aids the IRS in determining what constitutes a feasible offer from the business.
OIC for Self-Employed Individuals
Conversely, self-employed persons grapple with a unique set of financial considerations. Their personal and business finances frequently intermingle, and the Offer in Compromise (OIC) assessment process may encompass both of these realms.
Understanding and segregating personal and business debts and assets becomes crucial. The IRS will typically examine:
- Personal Assets and Liabilities: Including personal savings, properties, and debts.
- Business Cash Flow: Evaluating the net income after business expenses.
- Expenditure: Reviewing both business and personal spending.
The OIC, in this context, becomes a balanced act, maneuvering between personal and business financial landscapes to formulate an offer that’s both acceptable to the IRS and viable for the individual.
Strategies to Manage Emotional Stress
Emotional resilience becomes a cornerstone in navigating the choppy waters of OIC negotiations, wherein the taxpayer is not negating or suppressing emotions but navigating through them with an informed and balanced approach.
- Seeking Professional Guidance: Engaging with a tax professional alleviates the technical burden and provides a buffer between the individual and the IRS.
- Establishing a Support Network: Leaning on friends, family, or professional counselors who can provide a listening ear or comforting presence.
- Physical Wellness: Prioritizing physical health through regular exercise, balanced nutrition, and adequate sleep, which in turn fortifies mental well-being.
How Do I Know If I Am Eligible?
Our tax experts are well-versed with the eligibility criteria for Offer in Compromise applicants. We first verify the status of our clients’ filings and payments and confirm that they are not facing any bankruptcy proceedings. The IRS has a list of other conditions to determine the eligibility of applicants; however, an Offer in Compromise is only an option if your taxes have already been assessed. At Victory Tax Lawyers, we ensure that our clients don’t miss out on any details that will affect their application.
IRS Offer In Compromise: Frequently Asked Questions
IRS Offer In Compromise: Frequently Asked Questions
Who is qualified to submit an Offer in Compromise (OIC)?
To be considered for an OIC, taxpayers must adhere to the following prerequisites:
- Submit all requisite tax returns
- Obtain a bill for at minimum one tax debt to be incorporated in the offer
- Refrain from participating in active bankruptcy processes
- Observe all IRS directives pertaining to filings and payments
- Demonstrate a viable collection potential
How can I apply for an OIC?
To apply for an OIC, you typically need to:
- Submit Form 656, "Offer in Compromise."
- Pay the application fee and initial payment, depending on your offer and if you meet Low-Income Certification guidelines
- Include Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms
When assessing an Offer in Compromise (OIC), what criteria does the IRS take into account?
What is the usual duration for the IRS to reach a decision?
What transpires if my OIC is accepted?
What if my OIC is rejected?
Is it possible to directly negotiate my tax debt with the IRS?
Are there other IRS programs to assist with unpaid taxes?
Where can I find additional assistance or details about OIC?
Can I make payments on my Offer in Compromise?
Yes, there are different payment options available:
- Lump-Sum Cash: Submit an initial payment of 20% of the total offer amount with your application. If accepted, pay the remaining balance in five or fewer payments.
- Periodic Payment: Make your initial payment with your application and continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly.
Is it possible for an OIC to be rescinded?
Does an OIC impact my credit score?
While the IRS doesn't directly report your OIC to credit bureaus, settling a debt for less than the original amount owed can appear on your credit report and might impact your score.
What happens to liens and levies during and after an OIC?
While the IRS is evaluating your OIC, they will typically halt levy actions. However, federal tax liens may remain in place until the OIC terms are met. Once you've fulfilled the OIC terms and the debt is cleared, the IRS should release any liens.