Comprehensive Guide to IRS Offer in Compromise Eligibility

Introduction

Dealing with substantial tax debt can be overwhelming. Fortunately, the IRS offers several relief options, including the Offer in Compromise (OIC). This program allows eligible taxpayers to settle their tax liabilities for less than the full amount owed. However, acceptance into the program requires meeting strict criteria and a comprehensive understanding of the process. In this guide, we will delve into everything you need to know about the Offer in Compromise, from eligibility requirements to actionable steps.

What is an Offer in Compromise?

An Offer in Compromise is a tax relief program provided by the IRS, allowing taxpayers to settle their debt for less than the full amount owed if certain conditions are met. The IRS considers an OIC when it believes the taxpayer's income, expenses, and asset equity render it unlikely they could pay the full tax obligation.

Eligibility Requirements

Understanding the eligibility requirements for an OIC is crucial. The IRS evaluates each application based on a taxpayer’s ability to pay, income, expenses, and asset equity.

Basic Criteria

• Filing Compliance: Applicants must have filed all legally required tax returns.
• Payment Compliance: Applicants must have made all required estimated tax payments.
• Exempt Business Status: If a business - current on all federal tax deposits.
  • Reference: IRS Form 656 Booklet - IRS Form 656-B

Offer Types

Two types of OIC applications include:

• Doubt as to Collectibility: When there is a legitimate doubt that the full liability can be collected by the IRS.
• Doubt as to Liability: When there's a dispute about the accuracy of the amount owed.

Calculating Your Offer

The IRS uses a specific formula to determine the minimum offer amount they might accept.

Reasonable Collection Potential (RCP)

The RCP is considered by the IRS and includes analyzing a taxpayer’s net assets and potential income.

• Include assets (real estate, bank accounts, vehicles).
• Analyze potential future income.

Submitting an Offer

Forms Required: To submit an Offer in Compromise, complete IRS Form 656 and include all necessary financial statements through Form 433-A (for individuals) or Form 433-B (for businesses).

• Reference: Publication 594 - The IRS Collection Process

Step-by-Step Process

• Complete required forms.
• Submit application with relevant fees and initial payments.
• Send to appropriate IRS processing center.

The IRS decision process can take several months, during which they're likely to scrutinize the details provided extensively.

Actionable Steps

• Ensure compliance with all tax filing and payment obligations.
• Gather and calculate comprehensive financial information for accurate assessment.
• Consult with a tax professional for tailored guidance.
• Submit your application along with the necessary fees.

Visit /dashboard for personalized assistance with your Offer in Compromise.

FAQs

• What is the success rate for an Offer in Compromise?

  The success rate varies, but as of recent statistics, approximately 40% of OIC applications are accepted.

• Can I appeal a rejected OIC?

  Yes, you can appeal within 30 days of the rejection using Form 13711.

• Does an OIC affect my credit score?

  An OIC does not directly affect your credit score, but unresolved tax debt can indirectly impact it.

• What if I miss a payment after my offer is accepted?

  Failure to adhere to payment terms can revoke the agreement, resulting in the reinstatement of the full original debt.

• Can I propose a new offer if my first one is denied?

  Yes, you can submit another offer or explore different IRS relief options.