For individuals and businesses facing IRS debt, exploring every option for settlement, such as an offer in compromise, is crucial. One of the primary means is the Offer in Compromise (OIC), a program allowing taxpayers to settle their tax liabilities for less than the total amount owed. However, it’s essential to understand its nuances and compare it to alternative options.
What Is an Offer in Compromise?
An OIC is a formal agreement between an individual or business filer and the IRS for an amount less than the tax liability owed in normal circumstances. However, there are eligibility requirements. To qualify, filers must be under financial hardship per IRS guidelines or show exceptional circumstances. The IRS considers income, expenses, and asset equity when evaluating, providing a fresh start for those facing significant financial challenges.
An OIC has a minimal impact on creditworthiness as it indicates a commitment to resolving tax debt. Nevertheless, there are hurdles filers may face. The process for evaluation is often grueling, and the IRS may reject your application. Moreover, once an OIC is granted, it restarts the statute of limitation on tax debt—a disadvantage for some.
Other IRS Debt Solutions
Installment agreements are structured payment plans that allow taxpayers to pay back their tax debt over time. This option is suitable for individuals and businesses with the financial means to make regular monthly payments and offers flexibility based on financial capacity.
The Currently Not Collectible (CNC) status is another option for taxpayers facing financial hardship. A CNC temporarily suspends IRS debt collection activities due to an inability to pay until the taxpayer’s financial situation improves.
Penalty abatement is a strategy to reduce or eliminate penalties associated with unpaid taxes. The IRS may consider penalty relief if the taxpayer can demonstrate reasonable cause, such as a medical emergency or other unforeseen circumstances. While it doesn’t directly reduce underlying tax debt, it can provide significant financial relief by eliminating or reducing additional fees.
Each settlement option has unique qualification criteria and has distinct advantages and considerations, requiring careful evaluation to determine the most suitable approach. Contact the Highland Tax Group today to ensure an accurate and comprehensive analysis of your situation to see whether an OIC or another IRS debt leverage option is the best for you.