Fascinating Facts About the IRS Offer In Compromise Program

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What happens if you owe the IRS more money than you can possibly pay, even over an extended period like 6 years? (That’s the current maximum for the agency’s repayment installment plan.)

To deal with these cases, the IRS has developed an IRS Offer in Compromise (OIC) Program that allows you to repay less than your full debt, either in a lump sum or over a period of time. Before agreeing to an Offer in Compromise, the IRS will consider your ability to pay, your income, your expenses and your equity in any assets you have.

The IRS booklet–Form 656 (https://www.irs.gov/pub/irs-pdf/f656b.pdf) fully explains the (OIC) program.

Here are some things that you might like to know about the program:

  • To qualify, you must be up to date in all your tax filings (and in your current estimated tax payments).
  • You’ll have to pay a $186 application fee that’s non-refundable, and an amount equal to one of the monthly payments you’re proposing to make. The IRS keeps that payment whether it accepts your offer or not.
  • Once the offer is processed, you should receive a letter saying that you will hear from someone at the IRS within 120 days. Depending on the complexity of your finances, it can still take 6 to 12 months after you file for an OIC for the IRS to determine whether or not they’ll accept your offer.

The IRS adopted a Fresh Start program in 2012 to make it easier for taxpayers to pay what they owe and to avoid getting a tax lien. The acceptance rate for OICs has risen since that time:

  • In 2011, the IRS accepted 34 percent of the submitted OICs
  • In 2012, it accepted 38 percent
  • In 2013, it accepted 42 percent
  • In 2014, it accepted 40 percent

Of course, that means in all these years, they also rejected more than half of the proposed OICs.

  • In FY 2015, taxpayers proposed 67,000 offers in compromise to settle existing tax liabilities for less than the full amount owed. IRS accepted 27,000 offers, amounting to $204.7 million, during the year.
  • There’s an online pre-qualifier to help people determine if they qualify for the OIC program. (https://irs.treasury.gov/oic_pre_qualifier/). The IRS says that people using this pre-qualifier have a better chance of getting their OIC accepted (presumably because it discourages people who probably won’t qualify for the IRS Offer In Compromise program anyway)

If you owe the IRS and think you may qualify for an IRS Offer in Compromise, you have come to the right place. Please call us at 720-398-6088 for more information!