The IRS's Acceptance Criteria for Offers In Compromise

The IRS’s Acceptance Criteria for Offers In Compromise:

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Doubt as to Liability: You can propose an Offer in Compromise if you believe there’s a genuine dispute about the amount you owe. To qualify, you must provide evidence that supports your claim that the assessed tax liability is incorrect.
Doubt as to Collectibility: This is the most common reason for seeking an Offer in Compromise. You must demonstrate that you are unable to pay the full tax debt within a reasonable time, even with the sale of assets or the use of installment agreements. To prove this, you’ll need to provide detailed financial information, including income, expenses, assets, and liabilities.
Effective Tax Administration: In some cases, you may not dispute the amount you owe or your ability to pay it, but exceptional circumstances may make full payment unfair or inequitable. This option is typically used in situations where paying the full amount would create significant economic hardship.
Compliance with Tax Filings: You must be up to date with all required tax filings. This includes filing all outstanding tax returns before submitting your Offer in Compromise.
Advance Payment of Application Fee and Initial Payment: You need to include a non-refundable application fee along with an initial payment when submitting your offer. These fees can vary based on your financial situation and the type of offer you’re making.
Payment Terms: The IRS expects you to adhere to specific payment terms if your offer is accepted. This typically involves making a lump-sum payment or a series of periodic payments within a specified timeframe.
Taxpayer’s Cooperation: You must cooperate with the IRS throughout the evaluation process and provide any requested documentation and information promptly.
Evaluation of Equity and Assets: The IRS will consider your equity in assets such as real estate, vehicles, bank accounts, and investments when assessing your ability to pay. You may need to sell non-essential assets to satisfy the debt.
Reasonable Collection Potential (RCP): The IRS evaluates your reasonable collection potential, which is based on your income, expenses, and asset equity. If your RCP is equal to or greater than the tax debt, your offer may be rejected.
Review and Appeals: The IRS reviews your offer to determine if it meets their criteria. If rejected, you have the right to appeal the decision within a specific timeframe.

Understanding these criteria is essential when considering an Offer in Compromise. It’s often advisable to consult with a tax professional or attorney who can assess your specific situation and guide you through the process effectively.

Frequently Asked Questions

What is the IRS's Offer in Compromise (OIC) program, and how does it work?

The IRS’s OIC program allows eligible taxpayers to settle their tax debt for less than the full amount owed. It’s based on your ability to pay and is designed to provide financial relief to individuals and businesses facing genuine hardship.

What are the IRS's acceptance criteria for OICs?

The IRS considers several factors when evaluating OIC applications, including your income, expenses, asset equity, and future earning potential. They assess whether paying the full amount of your tax debt would cause undue financial hardship.

How do I determine if I'm eligible for an OIC?

You can use the IRS’s Offer in Compromise Pre-Qualifier tool on their website to assess your eligibility. It will help you determine if you meet the basic criteria before applying.

What financial information do I need to provide with my OIC application?

You’ll need to submit detailed financial information, including income documentation, expense records, asset valuations, and information about your monthly living expenses. The IRS uses this information to evaluate your ability to pay.

Is there a minimum or maximum amount of tax debt required for an OIC?

There is no minimum tax debt required, but there is no specific maximum limit. However, OICs are generally more commonly accepted for larger tax debts where full payment would be genuinely unaffordable.

What is the likelihood of the IRS accepting an OIC?

The acceptance rate varies, but the IRS does approve many OICs each year. Success depends on your unique financial circumstances and how well your application is prepared and presented.

Can the IRS reject my OIC application?

Yes, the IRS can reject your OIC application if they determine that your offer does not meet their acceptance criteria or if you fail to provide requested documentation.

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 for applicants who meet certain low-income criteria.

What happens if my OIC is accepted by the IRS?

If your OIC is accepted, you’ll 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.

What if my OIC is rejected? Can I appeal the decision?

Yes, if your OIC is rejected, you have the right to appeal the decision within 30 days. You can also explore alternative options, such as setting up an IRS Installment Agreement.

Should I seek professional help when applying for an OIC?

Many individuals and businesses find it beneficial to work with tax professionals, such as tax attorneys or enrolled agents, when applying for an OIC. These professionals can help ensure your application is complete and accurate, increasing your chances of success in the process.

Remember that the OIC process can be complex, and professional guidance can be valuable when navigating the IRS’s acceptance criteria and requirements.

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