While the Internal Revenue Service (IRS) made changes to its Offer in Compromise (OIC) program in 2012 and enacted more flexible terms, many Americans still struggle to win their cases. Why? And what can you do to win yours or at least position yourself for best results?
Understanding how the IRS evaluates OICs might help you get an approval in your case.
The Big Picture
In an OIC, the taxpayer agrees to pay a reduced amount to the IRS in a settlement offer that the government can accept or reject at its discretion. Statistically speaking, the IRS only accepts about one in four of all OICs.
Reasons the IRS Doesn’t Accept an OIC
The IRS will reject your offer if it determines that you can pay the amount owed, either in full or on an installment plan. The government will consider your earnings and assets in order to decide whether it can collect the owed taxes. The IRS uses a formula called reasonable collection potential, or RFC, in order to calculate this likelihood of collection.
The IRS might also reject your offer if you have a blemish on your record (e.g. if you have a previous criminal conviction). Even so, the IRS will include a letter with the acceptable OIC amount, and it can provide you with a copy of the report that states the reasons for the rejection. (You will need to ask specifically for a copy.)
Allowable Living Expense
Allowable living expense assesses a taxpayer’s ability to pay by assigning standard allowances for basic necessities. The IRS reviews these standards when making decisions about accepting OIC requests and payment arrangements. You should know these standard allowances before you submit your OIC.
Pre-Qualifying
For further help, check online to see whether you pre-qualify for an OIC. Such a calculation also helps you determine a reasonable amount to offer, which is the amount that the IRS could take from your future earnings plus the real value of your property. If your offer is too low, the IRS will reject it.
Special Considerations
After you calculate the OIC amount, you might realize that you can’t afford to pay it. You can still submit an offer, since IRS workers have some flexibility. If you are over 60 or suffering from physical or mental health issues, the IRS might grant you an exception.
The complexities involved with applying for an Offer in Compromise can prove daunting, even if you have the time and skill to parse through dense IRS documents and go through your own financials with a fine-toothed comb. Make it easier to obtain the relief you need by calling a qualified tax professional at Highland Tax Group. Call for a thorough analysis of your situation at 720-398-6088.