6 Critical Insights about the IRS Offer In Compromise Program

The Internal Revenue Service’s Offers In Compromise (OIC) program helps qualified taxpayers reduce what they owe to the federal government. However, the IRS will not make an OIC agreement if the taxpayer can pay his or her debt in full through a payment plan. The following tips can help you as you prepare and submit your paperwork for an OIC:

  1. Determine whether what you owe is really correct. If you can dispute the correctness of your tax debt, the IRS might consider an OIC. Do you have grounds to dispute what you owe? Do you have evidence to back up those assertions? Remember: avoid lying or exaggerating for effect on your application; otherwise, not only can you sink an otherwise winning case, but you can also get in trouble for perjury.
  1. Keep in mind that a real person with the IRS will review a full gamut of information about you, including your assets and earnings and whether you can pay the full amount owed. In other words, the government doesn’t automate this process. An actual Office in Compromise Officer will scrutinize your application.
  1. If you owe back taxes, the IRS might strive to collect them… or not. The IRS might bend if paying the taxes would mean serious hardship for you or lead to an unjust situation. For example, you might have equity in your home, but your credit and your income have both suffered during recent years, so you can’t access that equity. The IRS might agree that such a situation forecloses your ability to pay the back taxes and grant relief accordingly.
  1. To be approved for an OIC, a taxpayer generally needs to pay a $186 application fee and submit that with the required Form 656. However, you do not need to pay the fee if you are questioning your liability to pay the taxes or if your personal income falls below the poverty guidelines, according to the Department of Health and Human Services.
  1. If the IRS sends you an OIC, you have the option of paying it in five separate payments within five months, also called a lump-sum offer. You will need to submit 20 percent of the OIC lump-sum offer and the $186 application fee, if applicable, with your offer. The IRS will keep the payment and credit it toward your tax, even if it does not accept your offer. You might also decide to make a periodic payment offer of six or more payments due within two years after the acceptance of the OIC. Again, you need to submit the $186 application fee and the first payment with the OIC offer and continue to make payments until you hear back from the IRS.
  1. If the IRS does not accept an OIC, you can appeal the decision within 30 days. However, the IRS might return the offer due to failure to submit the required information or the required fees. Other reasons for returning an offer include a recent bankruptcy and failure to file taxes or pay current tax obligations.

Do you need help with this admittedly sophisticated process? Call Highland Tax Group now, and our qualified tax professionals can walk you through exactly what to do and how to do it: 720-398-6088.