Submitting an Offer in Compromise (OIC) and obtaining IRS acceptance is a complicated process. It does require attention to details and knowledge and compliance with a numerous IRS regulation, procedures and guidelines. The rejection can be the result of lack of knowledge, preparation and judgment.
The IRS usually approves the Offer in Compromise (an agreement between the taxpayer and IRS settling the tax liability for payment of less than the full amount owed) when it believes that the amount is potentially collectible in full, at the earliest time and at the least cost. When the offer is accepted, the taxpayer must comply with all filing and payment requirements for the next five years.
There are three different kinds that may apply to an Offer in Compromise:
- Cash (must be paid in 90 days or less after acceptance)
- Short-term deferred payment (must be paid in more than 90 days, up to 24 months)
- Deferred payment (offers with payment terms over the remaining statutory period for collecting the tax).
Offer in Compromise:
- Effective Tax Administration (ETA) . For the IRS to accept this offer the taxpayer must agree with the tax amount delinquent and that this amount would be paid in full; taxpayer also must demonstrate that.
- Doubt as to Collectability. It is when the IRS doubts that taxpayer could ever pay the full amount of the tax owed either through installments or by liquidating his assets.
- Doubt as to Liability. Taxpayer in this case needs to prove that he does not owe the assessed tax and the amount owed is incorrect.
When submitting an Offer in Compromise, a taxpayer must provide the IRS with a wide range of financial documents in order to evaluate his ability to pay. In their evaluation, the IRS agents consider the equity in the taxpayer’s house, and other assets, plus any additional “reasonable” source of income. The documents to provide will include recent financial statement prepared on an IRS form 433-A, or IRS form 433-B; along with supporting proofs as recent bank statements, tax returns, paystubs, house appraisals, deeds, other property titles and any other financial documents.
After review, the IRS renders its decision. In case the OIC is rejected, the taxpayer can appeal to the IRS Appeals Office, or to the United States Tax court, he can propose an installment Agreement or would try to classify his case as Currently Not Collectible.
Once the OIC is accepted the taxpayer must remain in the compliance and if he fails to comply the offer will be annulled and all delinquent taxes will again be due.
An Offer in Compromise is a good way to get a fresh start with the IRS and resolve all tax problems. However, the process of the OIC preparation can be very complicated and its approval or denial depends on the preparation. If you owe taxes, and you would like to have an Offer in Compromise, call our office now, and let our experienced team, help you get a fresh start.