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Tax Blog

What is an Offer in Compromise?

If you find yourself in debt to the IRS and unable to repay the full amount on time, an Offer in Compromise (OIC) might be a viable solution. This program allows you to settle your tax debt for less than the total amount owed, providing a potential lifeline for those facing significant financial hardship. The IRS considers an OIC a serious option for taxpayers who cannot pay their full tax liability or for whom paying in full would create undue financial strain.

When evaluating an OIC application, the IRS reviews each candidate's specific facts and circumstances. Key factors considered include:

  1. Ability to Pay

  2. Income

  3. Expenses

  4. Asset Equity

The IRS typically approves an OIC when the proposed amount represents the maximum they can expect to collect within a reasonable period. To qualify for an OIC, you must meet the following criteria:

  1. Filed all required tax returns and made all necessary payments.

  2. Are not currently involved in an open bankruptcy proceeding.

  3. Have a valid extension for a current-year return, if applicable.

  4. If you are an employer, you must have made all required tax deposits for the current and past two quarters before applying.

To file for an OIC, you must complete the appropriate form based on your status as an individual or a business and mail it to the IRS. Upon receiving your offer, the IRS will review it and notify you in writing if any deficiencies prevent them from processing it. If the offer is processable, they will send a letter outlining the estimated timeframe for their decision. Should your offer be rejected, you have thirty days to request an appeal.

An OIC can provide much-needed relief, allowing you to resolve your tax debt in a manageable way. However, it is crucial to understand the eligibility requirements and the application process to increase your chances of approval. If you're struggling with tax debt, consider consulting a tax professional to explore whether an OIC is the right option for you. For more information, please contact The Center for Financial, Legal, & Tax Planning, Inc. professionals at (618) 997-3436.



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