If you have a major debt in back taxes and cannot pay the full amount, the IRS has an offer for you. It is not always possible for the taxpayer to collectively bring a hefty sum, especially during times of need. What do you do when you cannot pay the full amount in one go?
Navigating tax debt can be a challenging journey, especially when dealing with the Internal Revenue Service (IRS). And this is exactly where the IRS grants a process, called ‘Offer in Compromise‘ (OIC), to taxpayers who have a hard time paying the full amount in one go. But how do you effectively negotiate an Offer in Compromise with the IRS? But, before that, you need to understand what is Offer in Compromise?
What is Offer in Compromise?
Have you ever faced a situation as hard as not being able to pay the full debt amount in one go? We know how difficult it can be. And that’s where Offer in Compromise comes to the rescue. But, have you ever wondered what is offer in compromise with IRS?
An Offer in Compromise is a form of agreement between a taxpayer and the IRS which enables the taxpayer to settle their tax debt for less than the original amount. This is mainly because it is a negotiation tactic which apparently can be mutually beneficial.
This means it creates a balance between the needs of the taxpayers and the IRS – for the taxpayer struggling with the tax debt and the IRS aiming to collect as much as possible. When making an Offer in Compromise, it needs a few forms and a couple of documentation, alongside an application fee of $250.
Qualifying for an Offer in Compromise
Understanding how to qualify for IRS Offer in Compromise is crucial. The IRS takes consideration of your ability to pay, the income and expenses you have, as well as asset equity. However, not everyone qualifies for an OIC. Now this is largely because it is an option when the amount offered is actually the most the IRS can expect to collect within a given time span.
Although, there are no difficult and complex requirements for an Offer in Compromise. However, it is important to know that you cannot apply if you are facing bankruptcy proceedings.
When going through the offer, the IRS is going to consider a number of factors, including your future income, assets, debts, and overall ability to pay the debt amount. In case you’re considering an Offer in Compromise, you can also use IRS’ pre-qualifying tools.
Negotiating an Offer in Compromise
Ask yourself why you need this program? Then, ask yourself again, “What is an Offer in Compromise IRS?” Once you have answers for them, start planning a negotiation. But before that, you should understand how does IRS offer in compromise!
Negotiating an Offer in Compromise requires careful planning and sound strategies. It’s critical to present a compelling case demonstrating that the amount you’re offering is the most the IRS can realistically expect to recover.
Be prepared to provide detailed financial information and be open to discussions with IRS officials. Remember, the goal is to persuade the IRS that accepting your offer is in their best interest.
- Get a Clear View of Your Financial Situation: The very first step when negotiating OIC is to have a clear view of your financial condition. You need to give detailed information about your income, expenses, assets, as well as liabilities. The IRS assesses this information to get a view of your ability to pay your tax debt.
- Determine a Reasonable Offer: Your offer must be based on ‘reasonable collection potential’ (RCP), which basically is an overall estimate of your ability to pay (as determined by the IRS). The RCP consists of the value that can be understood from the assets you own, such as Property, bank accounts, automobile and other property, as well as your future income minus certain amounts allowed for basic living expenses.
- Submit Your Offer: After you have decided the offer in mind, you can submit it to the IRS along with Form 656, “Offer in Compromise,” and Form 433-A (OIC), “Collection Information Statement.” In this case, you need to provide a non-refundable payment that applies to your tax debt.
How to Get an Offer in Compromise?
Getting an OIC needs a formal application using Form 656, “Offer in Compromise,” as well as Form 433-A (OIC), “Collection Information Statement.” You need to put on table a specific amount that you can pay and provide detailed financial information to back the information up.
At this point, know that when you are figuring out ways to get the IRS to accept an Offer in Compromise, they will assess your proposal alongside your income, expenses, assets, and future earning potential. So, there is no direct answer to how to get IRS to accept offer in compromise!
Examples of Offer in Compromise
Let’s consider an offer in a compromise example. For instance, consider you owe the IRS $50,000, but once they hunt your financial situation, the IRS determines that you can realistically pay only about $20,000.
At times like this, you might propose an OIC of $20,000. In case the IRS accepts, you will only need to pay the agreed amount, and the rest of your tax debt would be forgiven.
However, every case is unique, and the IRS takes into account a number of factors before accepting or rejecting an offer. So, get a better understanding of how to get an offer in compromise, and what it takes to qualify for one.
Bottom Line
Dealing with tax debt can be as scary as the sea. But, it’s very important that you have a clear idea about what exactly Offer in Compromise is. However, the method is pretty complicated at times, and requires a thorough understanding of all IRS procedures.
Please don’t hesitate to seek professional help if your offer in compromise is rejected, or if you’re unsure about any aspect of this process.
But, what is “Offer in Compromise rejected, now what?” If your proposal is rejected, you can appeal the decision within 30 days using IRS Form 13711, Request for Appeal of Offer in Compromise. With strategic planning and negotiation, you might get to reduce your tax debt and achieve financial freedom!
