Dealing with tax debt can be overwhelming, but the IRS offers several solutions to help taxpayers manage their liabilities. One of the most effective options for significant tax debt relief is the Offer in Compromise (OIC).
In this guide, our tax professionals at Anderson Bradshaw are breaking down what an offer in compromise is, who can seek this relief, and how you can maximize the benefits of an OIC.
What is an Offer in Compromise?
An OIC is a program provided by the IRS that allows taxpayers to settle their tax debt for less than the full amount owed. The goal of the OIC is to facilitate payment from individuals who are unable to pay their full tax liability without experiencing severe financial hardship. Essentially, it provides a path to financial relief for those who qualify.
The IRS considers several factors when evaluating an OIC application, including the taxpayer’s ability to pay, income, expenses, and asset equity. If the IRS determines that the offered amount is the most they can expect to collect within a reasonable period, they may accept the OIC and forgive the remaining tax debt.
Who Can Seek an Offer in Compromise?
Not everyone qualifies for an OIC. To be eligible, you must demonstrate an inability to pay your full tax debt through a lump sum or an installment agreement. Additionally, you must be current with all filing and payment requirements, meaning all required tax returns must be filed, and any estimated tax payments must be up-to-date.
It’s also important that you are not in an open bankruptcy proceeding. Beyond these general stipulations, there are three primary grounds under which the IRS may accept an OIC:
- Doubt as to Collectability: The IRS doubts that the full amount of tax debt can be collected within the statute of limitations for collection.
- Doubt as to Liability: There is doubt as to whether the assessed tax liability is correct.
- Effective Tax Administration: Exceptional circumstances exist that would make the collection of the full amount unfair or inequitable, even if the tax liability is correct and collectible.
How Can I Apply for an Offer in Compromise?
If you believe you have grounds for an OIC, you seek tax debt relief in four simple steps:
- Compile necessary documents
- Consult a tax relief consultant
- File your documentation
- Navigate the review process
Compile Necessary Documents
Before you start the application process, gather all necessary documents to support your financial situation. This includes proof of income (such as recent pay stubs, self-employment earnings statements, and Social Security payments), expense records (including monthly bills such as mortgage or rent, utilities, groceries, and medical bills), and asset documentation (covering real estate, vehicles, bank accounts, and retirement accounts). You should also have copies of your most recent tax returns on hand.
Consult a Tax Relief Consultant
While it’s possible to apply for an OIC on your own, consulting a tax relief consultant can significantly increase your chances of success. They will help you evaluate your eligibility, accurately assess your financial situation, and determine a realistic offer amount. They can also assist in completing the necessary forms and ensuring that all documentation is in order for a successful outcome.
File Your Documentation
The OIC application requires two primary forms: Form 656 (Offer in Compromise) and Form 433-A (OIC) for individuals or 433-B (OIC) for businesses. Form 656 outlines the amount you propose to pay and includes your personal information, while Form 433-A (OIC) or 433-B (OIC) provides detailed financial information about your income, expenses, and assets.
When submitting your application, you must include a non-refundable application fee of $205 (unless you qualify for the low-income certification) and an initial payment, depending on the payment plan you choose (lump sum or periodic). Submit the forms and payments to the IRS Centralized Offer in Compromise Unit via certified mail with a return receipt requested to ensure it’s received.
Navigate the Review Process
After submitting your application, the IRS will review your financial information and may request additional documentation. Be prepared to respond promptly and accurately to any inquiries. Possible outcomes include acceptance (where you proceed with the payment terms), rejection (where you may appeal the decision or explore other tax debt relief options), or a request for more information.
Seeking Help for Tax Debt Relief with Anderson Bradshaw
Seeking an Offer in Compromise can be a viable solution for those struggling with substantial tax debt. By understanding the process, preparing thoroughly, and working with the professionals at Anderson Bradshaw, you can increase your chances of achieving maximum tax debt relief.
To get started, contact Anderson Bradshaw Tax Consulting at 877.550.3911 or visit AndersonBradshawTax.com to get a Free Tax Evaluation. With over 32 years of experience, we are equipped with the expertise needed to help resolve your debt.
