Offer In Compromise and The IRS. Can you Really Settle On What You Owe?

If you’re someone who owes money to the IRS, you’re not alone. Per statistics compiled by the Government Accountability Office (GAO) in 2010, 16 million other Americans are in the same boat. As you’ve been researching relief, you may have heard about a settlement process called Offer in Compromise (OIC). What is this process? How do you know whether you qualify? If not, what are your other options?

The IRS website defines the OIC as follows: “An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship.” The goal of the problem is to establish a “fresh start” that will meet the needs of both the taxpayer and the IRS.

Do You Qualify for an Offer in Compromise?

First off, you need to meet eligibility requirements, which include among other things:

  • You have filed all legally required tax returns.
  • You have made any estimated tax payments for the current year.
  • Neither you nor your business is currently in bankruptcy.
  • You are not able to pay your IRS debt either in a lump sum or in an installment plan.

The IRS uses an objective formula based on your net equity in assets, liquidity, monthly disposable income, and related metrics to determine eligibility to this program. If you’re so inclined, you can explore the IRS’s pre-qualifier tool here.

Even if you do qualify, however, you may still not get the relief you seek. For instance, you still need to be able to pay the OIC amount, which can be substantial. 

Since the 2011 IRS Fresh Start Initiative, which relaxed some qualifying criteria, more and more taxpayers have been applying for the OIC program. That said, the number of success stories has been relatively small: the IRS reported only approximately 31,000 successful applications in 2013.

Getting Help with Your Offer in Compromise

Our experienced tax professionals can evaluate your financial circumstances and help you understand your options. Whether or not an OIC is an appropriate tool for you, we will work with you to find a tax solution that gives you back control. Call us for a full financial analysis at 720-398-6088.