Many people hear about an IRS offer in compromise as the perfect way to eliminate their tax debts and move forward. This can be true in many cases, but you should fully understand what is involved in an IRS offer in compromise (commonly referred to as an “OIC”) before you decide if this is the right option for you and your family.
However, not everybody qualifies. It’s important to understand whether you qualify or not in order to take advantage of the possible relief. The IRS has strict regulations that determine who does or does not quality for this “pennies on the dollar” solution to an unbearably large tax burden. It’s is essentially your offer to pay a small percentage of what the IRS says you owe as payment in full. Obviously, the IRS does not allow everyone to do this. There are, however, three circumstances in which an OIC is usually considered.
An offer in compromise will be considered only when all other options have been exhausted, including making installment payments to cover your tax obligations and IRS liens to seize your property or garnish your wages in order to recoup the taxes you owe. If you have established that you don’t have enough assets, income or potential income to ever be able to pay the full amount owed, then the IRS will consider an Offer in Compromise.
Who Qualifies for an Offer in Compromise?
The IRS considers an OIC if:
There is doubt about tax liability. That is, if there is some question about how much tax is actually owed or whether you are liable for it (for instance, if this is still being disputed in a court case).
Doubt as to collect-ability. If there is little or no hope that you will ever be able to pay the taxes in full because of changed financial circumstances or enormous debt (even a pending bankruptcy), the IRS may consider an immediate offer of a portion of what you owe better than spending a lot trying to chase down more money that they may never see. For the “official” offer in compromise information please visit the Internal Revenue Service website here.
Effective tax administration. This is a term that the IRS applies to their discretionary determination that a particular situation would simply be a hardship to the individual due to extraordinary circumstances such as a prolonged illness or disability. It can also apply to an unfair tax situation, although this is rare. Some circumstances that are frequently considered hardship situations that provide for an offer in compromise are individuals with a chronic illness, retirees on fixed incomes, those of advanced age, and individuals with HIV or drug-related health problems.
If you meet any of these criteria and have already attempted to devise a payment plan and were unable to devise a workable solution, submitting an offer in compromise is probably the right step for you. Consult a tax relief specialist for the best possible Offer in Compromise to submit in order to increase your odds of being accepted by the IRS.