IRS Offer

The IRS offers several safeguard programs for delinquent taxpayers. The IRS designed these programs for taxpayers in financial distress and for taxpayers who would suffer by strict interpretation of the tax law. One program is Offer-in-Compromise or OIC. Qualified delinquent taxpayers negotiate settlement with the IRS for less than the owed amount. There are three separate ways that a taxpayer can qualify for a reduced settlement under the OIC program:

1. Doubt as to Collectibility.  The taxpayer has tax debt and an inability to pay.
2. Doubt as to Liability.  The taxpayer has tax debt and a legitimate reason for not paying.
3. Effective Tax Administration.  The taxpayer has tax debt and possible ability to pay. But to do so would cause extreme financial distress.

Doubt As To Collectibility

The first type of Offer-In-Compromise (OIC) is known as Doubt As To Collectibility.  The delinquent taxpayer proves convincingly the taxes owed are greater than the taxpayer can ever afford to pay. If the IRS accepts this Offer-In-Compromise, then they agree to settle all of your delinquent tax debt for a single reduced amount. IRS has calculated what they think they can collect from you. The IRS calls this amount the Reasonable Collection Potential. Your settlement offer must equal or exceed the Reasonable Collection Potential amount. The IRS will reject an offer of less than the Reasonable Collection Potential amount.

Doubt As To Liability

The second type of Offer-In-Compromise (OIC) is Doubt as to Liability. The delinquent taxpayer proves convincingly to the IRS there is a legitimate reason the assessed tax debt is wrong. A common example would be the taxpayer presents evidence not previously considered. A seemingly legitimate reason cannot compel the IRS to agree to review a case. The IRS does not have to accept an Offer-In-Compromise application or to decide in favor of the taxpayer.

Effective Tax Administration

The third type of Offer-In-Compromise (OIC) is Effective Tax Administration. You agree the assessed tax debt is correct and that you could potentially pay it. However, you prove to the IRS that to collect the total tax debt would create a significant economic hardship for you and your family. The IRS calls economic hardships ‘special circumstances.’ Inconvenience does not qualify as a hardship. The IRS refers to economic hardship as Effective Tax Administration. You must collect, analyze and present extensive supporting documentation to satisfy the IRS hardship guidelines.

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In recent years The IRS has increased its collection effort for back taxes owed. But at the same time they provide the Offer in Compromise program to aid taxpayers who are experiencing genuine financial hardship. Statistics suggest that it is difficult to qualify for the Offer in Compromise program. The IRS has historically accepted somewhere between one quarter and one third of presented offers. The taxpayer can increase their chances of success with the following seven helpful suggestions:

1: Hire A Tax Resolution Specialist

Submission the OIC without the help of a tax resolution specialist decrease the chances for success. An experienced tax resolution specialist can help the taxpayer you qualify for an Offer in Compromise in many ways. Special OIC computer software analysis of the taxpayer’s finances can strengthen the package. An experienced tax relief specialist also guides the taxpayer through the OIC process.

2: File Tax Returns On Time

The Offer in Compromise is a one-time event. The IRS does not routinely provide relief for taxes owed. Part of the goal of the OIC program is to teach the taxpayer compliancy. The taxpayer should file all unfiled tax returns. This includes tax returns due during the OIC review period. Once the IRS accepts an offer, they oversee the taxpayer for 5 years after the date of acceptance of the offer. The taxpayer must remain compliant or the IRS will withdraw the offer.

3: Pay All New Taxes When Due

The IRS also wants the taxpayer to remain compliant by paying new taxes on time for the same time period mentioned in Step #2. The IRS oversees the taxpayer for 5 years from the date of offer acceptance.

4: Treat IRS Employees With Respect

Success of an offer could depend on how you or your tax resolution representative treat the IRS employees. The taxpayer or their representative cannot choose who handles their OIC case. Treating the IRS employees connected with your case with respect will help everything stay on even keel. Our experience has been the IRS hires good people. These employees are usually eager to help the taxpayer resolve their tax problem in a positive and friendly manner.

5: Present Your Finances Honestly

The taxpayer should never mislead the IRS. Taxpayer statements or documents that intend to mislead or deceive the IRS will eventually sabotage the case. Factual omissions will undermine the OIC process. This includes verbal, written or electronic communications of any form. Dishonesty can lead to charges of perjury. The IRS is expert at uncovering fraud.

6: Meet All Deadlines

The IRS treats all its deadlines seriously and therefore the taxpayer should as well. The taxpayer should meet any deadline that IRS gives to them directly or through the tax resolution representative. The taxpayer should allow themselves plenty of time to meet all deadlines.

7: Comply With All Follow-up Questions

The communication flow throughout the Offer in Compromise process is extensive. The person best equipped to manage this flow is the tax resolution specialist. The experienced tax resolution specialist is familiar with exactly how and when to provide questioned information. The specialist can guide the taxpayer toward presenting the information correctly the first time by lessening further need for information.  The specialist can guide the taxpayer toward meeting further questions in a timely and correct manner. A specialist is the taxpayer’s best method for communicating with the IRS.