What Is an Offer in Compromise With the IRS?
When you fall behind, it’s even easier for your back taxes to snowball out of control. The notices are too easy to ignore, but that’s not a good strategy. You can outrun the IRS for only so long.
You can take control and get that monkey off your back by making an offer in compromise.
What is an offer in compromise with the IRS? Read on to learn more.
What is an Offer in Compromise With the IRS?
An Offer in Compromise (OIC) is a form of IRS tax relief. It’s a proposal you make to the IRS stating you can’t pay the total amount of your tax burden. Doing so would result in financial hardship.
You make an OIC to the IRS to have a clean slate with the agency. If your OIC is accepted, the IRS ceases collection methods like wage garnishment because you’ve offered, in good faith, to pay a certain amount.
An OIC doesn’t mean automatic acceptance. In 2018, the IRS accepted 24,000 offers that totaled $261.3 million in back taxes. They also rejected 36,000.
How Does an OIC Work?
You start the OIC process by filing Form 433-A with the IRS with all required documentation.
In Form 433-A, you list all income, expenses, liabilities, and assets. Should you gain OIC approval, you must resubmit this form to verify your financial status is unchanged.
Filing sounds easy, but an expert tax professional helps during the process. Any mistake or any income you fail to disclose will result in disqualification.
A tax professional gives you the best chance of having your offer accepted.
Form 433-A is not the actual offer. It is a declaration of income the IRS uses to determine your financial hardship. After you file, the IRS may also investigate your finances to determine what they believe you’re able to pay.
Form 656: Offer in Compromise
Along with Form 433-A, you submit Form 656. This is the actual offer you’re making to the IRS. Form 656 outlines the proposed agreement of the amount you can pay to eliminate your tax debt.
Possible Tax Lien
The OIC process is not instantaneous. These proposed agreements can take months, and in the meantime, the IRS may file a Federal Tax Lien against you.
They do this to ensure collection should they reject your offer.
Filing for an OIC comes with a fee. As of this past year, the cost associated is $205. Submit this fee along with the payment installation amount you’ve proposed.
Should your OIC be approved, there’s a chance the IRS waves your application fee. Those who can prove their family is 250% or less than the Federal Poverty Line are not required to pay.
Why Are OICs Rejected?
The IRS wants you to pay your back taxes, and they are willing to work with you to get a portion of what’s due.
Yet, according to 2018 data, the IRS only accepts 40% of all OICs in a given year. To help gain approval for this IRS tax debt help, you must know the primary causes of rejection.
Income is the most common reason the IRS rejects OICs. When you file an OIC with the IRS, Form 433-A lists your income. Form 656 is the amount you’re willing to pay.
The IRS will reject your OIC if they determine your income is too high and your offer is too low.
Additional Tax Debt
Any agreement with the IRS relies on the taxpayer’s “good faith” compliance. Good-faith compliance means you agree to stay on the level with the IRS once you submit your OIC forms.
This compliance means you file your taxes on time and pay your quarterly estimates. Falling out of compliance while the IRS considers your OIC shows the agency you are not a good compromise candidate.
Lack of Information
OICs are often rejected because the taxpayer failed to provide all the necessary information on the forms. It could be something as simple as a missing Social Security number or incorrect employer identification number.
A tax consultant ensures your OIC will not be rejected for this reason. They’ll compile all the necessary information and review every form before it is submitted.
Why an OIC is Right for You
An OIC is a form of IRS tax forgiveness. When the IRS accepts your OIC, they agree to an amount that’s less than what you owe.
There are other reasons why you should pursue an OIC for outstanding tax debt over $10,000.
Knowing you owe money to the IRS casts a pall over your everyday life. It’s only a matter of time until they catch up to you, and the clock is always ticking.
An OIC is a vital first step to getting out of debt.
Income and Asset Protection
The IRS will garnish your pay and seize your assets if you owe a large sum of taxes and penalties. Making an OIC stops collection and allows you to pay your debt on your terms.
An OIC is not an Installation Agreement. When you make an Installation Agreement with the IRS, you extend your tax liability through monthly payments.
These payments may take years to resolve, and if you miss one, you may void your agreement. An OIC provides a much quicker path toward debt resolution.
Are You in Tax Debt? Hire a Tax Professional
What is an offer in compromise with the IRS? It’s a negotiation agreement that allows you to resolve your tax debt at an amount lower than what you owe.
OICs carry a high rejection rate, and the forms aren’t easy to navigate. If you owe back taxes to the IRS, call Anderson Bradshaw today.
Our tax relief professionals will guide you through the OIC process, and you’ll gain peace of mind knowing you’re on your way to resolution.
Contact us for expert tax help today.