Currently not Collectible Status
Many taxpayers facing the burden of unpaid taxes often wonder if there’s a way to settle their tax debt with the IRS. The answer is yes, but it’s essential to understand that it is a complex process and not everyone qualifies for these settlement options. One of the most sought-after resolution methods is the Offer in Compromise (OIC). An IRS Offer in Compromise (OIC) is a specialized tax resolution program designed to help financially distressed taxpayers settle their outstanding tax liabilities for less than the full amount owed. It provides a pathway for individuals and businesses who are genuinely unable to pay their tax debts in full to find relief and resolve their tax issues with the Internal Revenue Service (IRS). In this comprehensive guide, we’ll delve into the intricacies of the Offer in Compromise program, its eligibility criteria, the process involved, and how representation from a tax attorney, enrolled agent, or CPA can assist in securing a favorable outcome for you.
Types of Offer in Compromise:
- Doubt as to Liability: You can demonstrate that the tax assessed is incorrect.
- Doubt as to Collectibility: You can show that you can’t afford to pay the full tax debt within a reasonable time frame.
- Effective Tax Administration: Paying the full amount would cause undue economic hardship, or there are unique and compelling circumstances that warrant acceptance.
The most commonly filed Offer in Compromise is the Doubt as to Collectibility claim. Below is an in-depth look at the key components and workings of an Offer in Compromise Doubt as to Collectibility:
Who Qualifies for an Offer in Compromise?
The Offer in Compromise is not a one-size-fits-all solution. To determine if you qualify, you must undergo a rigorous evaluation of your current financial situation. The IRS primarily assesses your “ability to pay” your tax balance, taking into account several key factors:
Income: The IRS evaluates your income, including your salary, wages, self-employment income, and other sources. They consider your monthly disposable income, which plays a pivotal role in determining the offer amount.
Expenses: Your allowable living expenses, such as housing, transportation, utilities, and necessary health care costs, are closely scrutinized. The IRS often uses standardized expense figures, but you can sometimes justify higher expenses with proper documentation.
Equity in Assets: The IRS assesses the equity in your assets, which includes property, investments, and other valuable holdings. The value of these assets will affect the overall amount that you offer the IRS.
The key to a successful Offer in Compromise is to minimize your monthly disposable income as well as the equity in assets as much as possible. This reduction directly correlates with a lower offer amount, making it more likely for the IRS to accept your proposal. However, it’s crucial to understand that while you may perceive your ability to pay as limited, the IRS will attempt to prove that you can pay the full balance due – perhaps not in a lump sum, but through an installment agreement over time. Remember, the IRS wants to see the full balance paid.
Does the IRS Actually Accept Offer in Compromises?
Yes, the IRS does accept Offer in Compromises, but securing acceptance can be an uphill battle. Offer Specialists at the IRS are seasoned professionals with extensive knowledge of tax laws. Their goal is to ensure that the government receives as much of the owed balance as possible. Consequently, they might challenge your claim, arguing that you possess the ability to pay the full balance, even if it’s not in a lump sum.
Navigating conversations with Offer Specialists can be daunting without a deep understanding of the intricate rules and regulations they must adhere to. This is where the expertise of licensed tax professionals comes into play. Tax attorneys and enrolled agents have the experience and knowledge needed to engage with Offer Specialists effectively. They can advocate for your best interests and negotiate on your behalf to maximize your chances of securing an accepted offer.
How Long Is the Offer in Compromise Process?
The Offer in Compromise process is notorious for its lengthiness, especially in the wake of the COVID-19 pandemic, which has caused significant IRS backlogs. Currently, it’s not uncommon for the entire process, from submission to acceptance or rejection, to take approximately a year or even longer. However, the potential reward at the end, if your offer is accepted, can be substantial so don’t let this lengthy process deter you.
What If My Offer in Compromise Is Rejected?
Rejection of an Offer in Compromise is a possibility, given the stringent criteria imposed by the IRS. Nevertheless, a rejection does not signal the end of the road. Typically, when your offer is rejected, you retain the right to appeal the decision. The appeal process assigns an Appeals Officer, whose role is to mediate between the taxpayer and the IRS.
Appeals Officers are tasked with objectively evaluating the facts of your case and making a final determination. They may choose to sustain the rejection or accept the offer you’ve submitted. In this crucial stage, the assistance of tax professionals like tax attorneys or enrolled agents becomes even more valuable. They will vigorously advocate for your side, presenting a compelling case to increase the likelihood of an accepted offer, should you meet the qualifying criteria.
Settling tax debt with the IRS through an Offer in Compromise is an option available to taxpayers facing financial hardship. While navigating this process can be challenging and time-consuming, it offers a potential lifeline for those struggling with unpaid taxes. However, success in securing an accepted offer depends on a careful evaluation of your financial situation, skillful negotiation, and, often, the expertise of licensed tax professionals. When facing the IRS and seeking to settle your tax debt, having a knowledgeable advocate on your side can make all the difference in achieving a favorable resolution.
Ready to file your offer in compromise? Set up a free initial consultation by clicking HERE or give us a call at (918) 900-2790 and ask for a free tax resolution consultation to get started!