Preparing and Submitting an Offer In Compromise

Frequently Asked Questions

What is an Offer in Compromise (OIC), and how does it work?

An Offer in Compromise is a program offered by the IRS that allows eligible taxpayers to settle their tax debt for less than the full amount owed. It’s designed to help individuals and businesses who are facing financial hardship and cannot afford to pay their entire tax liability.

Who is eligible to apply for an OIC?

Eligibility for an OIC is determined by the IRS based on your financial situation. To be eligible, you must demonstrate that paying your tax debt in full would cause financial hardship or be inequitable. The IRS considers factors such as your income, expenses, assets, and future earning potential.

What types of tax debt can be included in an OIC?

Most types of federal tax debt can be included in an OIC, including income tax, self-employment tax, and certain penalties and interest.

How is the OIC amount determined?

The IRS calculates the OIC amount based on your ability to pay. This involves a comprehensive review of your financial situation, including your income, expenses, assets, and future earning potential. The final offer amount is typically a compromise between what you owe and what you can reasonably pay.

How do I prepare and submit an OIC?

To prepare and submit an OIC, follow these steps:

• Complete IRS Form 656, Offer in Compromise.
• Submit the required application fee and initial payment (if applicable).
• Provide all requested financial documentation, including income, expenses, and asset information.
• Mail the completed OIC package to the appropriate IRS address, as specified in the instructions.

Is there a fee to apply for an OIC?

Yes, there is a non-refundable application fee for submitting an OIC. However, this fee may be waived or reduced based on your income and financial hardship. Check the IRS guidelines for the most up-to-date fee information.

What happens after I submit my OIC application?

After submitting your OIC application, the IRS will review it, and this process may take several months. During this time, the IRS may request additional information or documentation. Be prepared to respond promptly to any requests.

What are my options if my OIC is accepted?

If your OIC is accepted, you will need to comply with the terms of the agreement. This typically includes making the agreed-upon payments and staying current on your tax obligations for a specified period (usually five years).

What if my OIC is rejected?

If your OIC is rejected, you have the right to appeal the decision. You can also explore alternative options, such as setting up an IRS Installment Agreement or seeking professional tax advice.

Is it advisable to seek professional help when preparing and submitting an OIC?

Yes, many individuals and businesses find it beneficial to work with tax professionals, such as tax attorneys or enrolled agents, when preparing and submitting an OIC. These professionals can provide guidance, ensure your application is complete and accurate, and improve your chances of a successful outcome.