Tax Attorney: Offer In Compromise

What Is An Offer in Compromise and How Does It Work?

An Offer in Compromise (OIC) is a formal agreement between a taxpayer and the IRS to settle tax debt for less than the full amount owed. This program is designed for individuals and businesses who genuinely cannot afford to pay their taxes in full. In essence, the IRS provides an option for taxpayers who either cannot pay their full tax liability or would experience financial hardship if they tried to pay the full amount to seek relief through the OIC program.

The IRS generally considers your income, expenses, asset equity, and ability to pay your tax debt when deciding whether or not to approve your request. While your OIC application is under review, several things happen:

• IRS collection activities, such as wage garnishments and bank levies, may be suspended.
• Non-refundable payments and fees will be applied to your outstanding tax balance.
• The IRS may still file a federal tax lien at its discretion.

Generally, the IRS will not accept an offer if you can pay your debt in full through an installment agreement or asset equity. The IRS demands that taxpayers explore other relief options first before submitting an OIC. And even still, not everyone who applies will eventually be approved.

Why Work With a Tax Attorney For an Offer in Compromise?

The OIC process is highly rigorous and thorough, and working with a skilled Offer In Compromise lawyer can significantly improve your chances. The IRS rarely accepts offers unless they believe it’s the most they can collect within a reasonable period. This means that the amount offered by the taxpayer must be equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS determines your ability to pay. It includes the value of your assets plus your expected future income minus basic living expenses. Your offer must at least match your RCP for the IRS to accept it.

Our team of experienced tax lawyers in California is well-versed in the complexities of the OIC program and the nuances of state and federal tax laws. We help clients struggling to pay their tax liability to navigate the requirements of the Offer in Compromise program, ensuring they present the strongest possible case.

Here are a few ways we help our clients:

• We evaluate their eligibility and determine if an OIC is the best payment option for them.
• We take care of all paperwork and documentation and submit a compliant offer to increase their chances of approval.
• We negotiate with the IRS to get them the most favorable outcome possible.
• We help them make all payments to prevent delays or rejection.
• We ensure compliance so their OIC isn’t revoked after it has been accepted.

If you’re struggling with your tax debt and unsure whether an Offer in Compromise might be an option, we’re here to help you explore the best path forward.

Eligibility and Qualification Requirements for an Offer in Compromise

The IRS has two categories of requirements for an Offer in Compromise (OIC): eligibility requirements and qualification requirements. Eligibility requirements are the basic conditions you must meet before the IRS will even consider your application. Qualification requirements, on the other hand, are the specific reasons the IRS looks at to determine whether or not to accept your offer.

1. Eligibility Requirements for The Offer in Compromise Program

Not everyone can apply for an OIC. Before applying, you must meet these conditions:

1. You must have filed all required tax returns and must have made all required estimated payments.
2. You mustn’t have any open bankruptcy proceedings.
3. If applying for the current year, you must have a valid extension.
4. If you’re an employer, you must have made tax deposits for the current and last two quarters.

If you go ahead and apply without first meeting these eligibility requirements, your offer won’t be processed; the IRS will return your application and apply any payments you included to your outstanding balance.

2. Qualification Requirements for The Offer in Compromise Program

If your tax attorney attests to your eligibility, you can then move on to this stage. The IRS will review and accept your OIC based on one of these three grounds:

1. Doubt as to Liability: You believe the tax debt is incorrect, and there is a legitimate dispute about the amount owed.
2. Doubt as to Collectability: Second, you must be able to prove your income and assets are insufficient to fully pay your full tax debt. If the IRS determines they are not likely to collect the full amount, they may accept a compromise.
3. Effective Tax Administration: Third, the IRS can accept a compromise if you’re able to pay in full, but you’re able to also prove that doing so would create a severe economic hardship or would simply be unfair and inequitable because of exceptional circumstances (e.g., a disability or medical condition).

To confirm if you’re a candidate for an OIC, you can use the IRS Offer in Compromise Pre-Qualifier Tool to get a preliminary assessment. Each case is unique, and IRS approval depends on how well your financial circumstance is presented, a strong reason why you should work with a tax attorney.

How to Submit Your Application for an Offer in Compromise

Applying for an Offer in Compromise (OIC) requires accuracy, thorough documentation, and adherence to IRS guidelines. To improve your chances of acceptance, it’s important to understand each step and ensure that your application complies with IRS requirements down to the last dot. Here’s a step-by-step guide to help you navigate the submission process:

1. Submit Your Application

Submitting an Offer in Compromise involves multiple IRS forms and strict documentation requirements. We help clients compile a complete and IRS-compliant application package, including:

• Completed and signed Form 433-A (OIC) (Collection Information Statement for Wage Earners and Self-Employed Individuals) or Completed and signed Form 433-B (OIC) (Collection Information Statement for Businesses), depending on which is applicable.
• Form 656(s) (Offer in Compromise)
• A taxpayer submitting an OIC based on doubt as to liability must file a Form 656-L (Doubt as to Liability) instead of Form 656 and Form 433-A (OIC) and/or Form 433-B (OIC).
• A $205 non-refundable application fee and a non-refundable initial payment for each Form 656 (unless you qualify for the Low-Income fee waiver).

Once you have these forms ready, you’ll need to make a copy of your application package and mail the completed application package to the appropriate IRS facility.

2. Make Payment

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: Include an initial payment of 20% of the total offer amount along with your application and application fee. If your offer is accepted, you’ll be notified and then required to pay off the remaining balance on the offer in five or fewer payments.
• Periodic Payments: With this plan, you’ll be required to submit your first installment along with your application and continue making incremental monthly payments while the IRS reviews your offer. If the IRS accepts your offer, you will continue to make monthly payments until the issue is resolved. Irrespective of how long the IRS takes to process your OIC, you are required to continue making payments under the periodic plan, as failure to do so can lead to an automatic rejection of your offer.

Offer in Compromise applicants who meet the Low Income Certification guidelines won’t have to cover application fees or the initial 20% payment. Also, you won’t have to make monthly payments until the IRS is done reviewing your offer.

What Happens When My Offer Is Accepted or Rejected?

When your offer is accepted, we will guide you through the next step of ensuring you meet all the terms listed in Form 656. We will also help you apply all tax refunds due from that calendar year to your outstanding balance. The IRS expects you to adhere to the repayment plan agreed upon and remain fully compliant for the next five years. Once all terms are met, the IRS will release any existing federal tax liens, allowing you to move forward without the burden of past tax debts.

But what if a taxpayer’s offer is rejected? No one looks forward to that. But here’s something most people don’t know: If your OIC is rejected, you don’t necessarily have to accept that outcome. Many taxpayers assume a rejection is final, but that’s not always true. You can always:

• Appeal the decision within 30 days using Form 13711 (Request for Appeal of Offer in Compromise) if you believe the IRS made an error or failed to consider your financial situation.
• Submit a revised offer with stronger supporting documentation to increase the chances of your offer being approved.
• Explore alternative tax relief options, such as penalty abatement or a Partial Payment Installment Agreement (PPIA).

Our tax attorneys at Victory Tax Lawyers are always on standby to provide our clients with any further assistance they may need regarding their offer. While we don’t hope for this, if your offer is rejected, we will go over your case, strengthen your documentation, and explore every legal option available to secure the best possible outcome.

Need a Skilled Attorney to Help with Your Offer in Compromise?

If you’re considering getting an offer in compromise in Los Angeles or anywhere in California, we’re here for you. The entire OIC process can be overwhelming, but you don’t have to do it alone. You can go through the different stages confidently if you allow the right guide to lead you.

At Victory Tax Lawyers, our experienced tax attorneys will evaluate your financial situation, craft a strong case, and negotiate directly with the IRS to help you settle your tax debt for less. Schedule your free consultation today and take the first step toward financial relief.