Offer in Compromise (OIC)

What Is an Offer in Compromise?

An IRS Offer in Compromise is a federal program that allows you to settle your IRS tax debt for less than the full amount you owe. It’s possible that you may be able to significantly reduce the amount that you owe in some cases. However, it’s important to know that the IRS accepts less than half of the OIC requests submitted each year. This is precisely why it’s so important to sharpen your odds by submitting your application with help from a tax professional.

Who Qualifies for an IRS Offer in Compromise

This program is available for taxpayers who owe more money to the IRS than they would ever reasonably be able to pay at once. If you qualify, you may be able to pay a smaller amount on a singular or serial basis that will count toward a final and total payment. Your tax debt will be settled once you pay the amount that is agreed to as part of your OIC settlement. The IRS is often willing to allow this because it is easier to get a reasonable payment from a taxpayer than it is to pursue full payment for years to come. You can use the fact that the IRS would rather get something instead of nothing to your advantage when you negotiate for OIC approval.

How to Qualify for an Offer in Compromise

You’ll need to submit an application that includes all of the accompanying financial details requested by the IRS to begin the IRS Offer in Compromise process. You should know that the IRS will only accept a request if you’re fully compliant with filing all past tax returns. That means you’ll need to take steps now to get all unfiled returns taken care of before you can submit your OIC request. The IRS will typically be looking at returns going back six years when analyzing your request.

What Is the IRS Offer in Compromise Process?

Let’s talk about what happens once you submit your OIC application. The IRS will look at your financial position – including income, assets, expenses, and living circumstances – when determining your ability to pay what you owe in back taxes. Of course, you must be able to provide all the information requested during the application process. OIC status could also be an option if you do not agree with the amount that the IRS claims you owe. You will have the option to file what is known as an Offer in Compromise-Doubt as to Liability (DATL) if you’d like to have your tax liability reconsidered by the IRS. The goal is to have your tax bill settled for less than what the IRS is claiming you currently owe using either of the OIC options on the table.

OIC isn’t just concerned with reducing the amount you owe in tax debt. Qualifying for the program also makes you eligible to have tax-adjacent costs reduced. That means you can negotiate settlements for penalties and interest. This can be a huge relief if penalties are adding up! You’ll need to use IRS Form 656 when applying for an Offer in Compromise. You will also need to fill out a Form 433-A Collection Information Statement for Wage Earners and Self-Employed Individuals or a Form 433-B Collection Information Statement for Businesses.

How to Get an Offer in Compromise Approved

Any tax professional will tell you that the best way to get a tax Offer in Compromise approved is to be as accurate, honest, and thorough as possible when submitting your application. Generally, you’ll need to prove that you’d be able and willing to pay what is owned once your debt level is reduced. This requires showing the IRS proof of monthly income, essential living expenses, asset values, and debts owed on assets.

What Happens If the IRS Rejects Your Offer in Compromise?

It is possible that the IRS will reject your application for an Offer in Compromise. Only about 40 percent of all OIC applications are accepted by the IRS. We sometimes see that the IRS will disqualify a request because the values provided during the application process are disputed by the IRS. In this case, the IRS will sometimes ask for a higher offer amount instead of simply rejecting an offer. However, an offer is often rejected when the taxpayer cannot pay the higher amount that is offered. You’ll have 30 days from the date on your rejection letter to submit an appeal if your application is rejected.

How Can Tax Group Center Help?

The only way to get your OIC approved by the IRS is to apply using the official IRS Offer in Compromise form. At Tax Group Center, we’ve helped countless individuals and businesses successfully gain acceptance into the IRS OIC program. Our tax attorneys, licensed CPAs, enrolled agents, and tax experts are fully familiar with all current and evolving OIC administrative procedures and tax laws. We have 30 years of experience with helping our clients solve problems with the IRS because we speak the language of the IRS! Reach out today to discuss how our OIC tax services and debt solutions can help you!