The Offer in Compromise (OIC) program is an IRS program designed to assist taxpayers who have substantial tax debt and are unable to pay in full. Typically, the IRS (or state of Maryland) will negotiate a figure that is equal to the greatest amount they expect to recover over a reasonable time frame but less than what the taxpayer actually owes.
There are a few eligibility requirements, but if you are not in open bankruptcy proceedings and are current with your tax filings, you could potentially pre-qualify for the Offer in Compromise program.
Keep reading to learn more about how to apply, which factors the IRS considers before accepting an OIC application, and how to approach negotiations to get the best possible offer in compromise for you and your family.
The Application Process
Depending on your situation, there are several forms that you might need to send to the IRS to complete your application for an offer in compromise. Make sure to complete these forms accurately and on time to increase your chances of success. Here’s a helpful link to the IRS’ Offer in Compromise program booklet, which includes each of the forms below.
- Form 656: This is the actual OIC form that must be submitted. It outlines the payment agreement that will satisfy the outstanding tax liability.
- Form 656-A: This additional form is also known as the “Income Certification for Offer in Compromise Application Fee and Payment.” It must be submitted and approved to waive the processing fee and the 20% down payment for an offer in compromise.
- Form 433-A: The Form 433-A is officially referred to as the “Collection Information Statement for Wage Earners and Self-Employed Individuals.” The IRS uses this form to ascertain the details of the filer’s financial hardship. It requires the taxpayer to declare all income, assets, liabilities, and expenses. (Keep in mind, the IRS or state of Maryland might ask for an updated 433-A before the Offer in Compromise is complete. If income and expenses change during the application process, this could affect your eligibility or acceptance into the Fresh Start/OIC program. If approved for an OIC, you’ll likely have to resubmit this form occasionally to prove your financial status has not changed to the extent that you could pay your tax obligation in full.)
- Form 433-B (OIC): This form is for businesses seeking to participate in the Offer in Compromise program rather than individuals.
Considerations for Acceptance
The IRS generally accepts Offers in compromise from taxpayers who meet at least one of the following criteria:
- Doubt as to Liability: There must be a legitimate dispute regarding the amount (or even the existence) of the tax debt.
- Doubt as to Collectibility: The taxpayer must prove their combined assets and income are less than the full amount of the tax debt and the future potential to collect the debt is highly unlikely or impossible.
- Effective Tax Administration: The taxpayer must show that paying the full tax debt could lead to economic hardship or some other unfair outcome based on the taxpayer’s unique circumstances.
Negotiating with the IRS
During the negotiation process, the IRS will thoroughly examine your finances to determine whether you could potentially pay the tax debt in full in the future. Here is a list of things you can do that will help put you in the best
- Make sure that all required tax returns are current and accounted for. As of March 2017, the IRS will no longer consider OIC candidates with missing returns.
- Thoroughly review all pertinent financial documents and cross-reference the figures they contain with your total tax liability. We suggest speaking with one of our experienced tax attorneys to review these figures and compare your income and expenses with the IRS Collection Financial Standards before you submit your OIC request.
- Contact the revenue officer This way, you can review the form together, ask relevant questions, and answer any questions the agent might have for you. Again, we recommend contacting S.H. Block Tax Services before submitting your application so that we can deal with the IRS directly on your behalf.
Appealing a Denied OIC Request
If the IRS denies your application for an offer in compromise, you have the right to file an appeal by submitting a Form 13711 (“Request for Appeal of Offer in Compromise”), but you must do so within 30 days of the date your rejection notice. If you would like our office to conduct the appeal on your behalf, you must provide the IRS with a copy of a Power of Attorney authorizing us to proceed with the process on your behalf.
A successful appeal must address and refute (with evidence) each issue raised in the original rejection. Although accepted appeals provide taxpayers with another opportunity to negotiate an offer in compromise, it will usually result in more favorable terms for the IRS than if you had succeeded with your initial application, so it’s important to get things right the first time.
Contact S.H. Block Tax Services for Experienced Tax Representation
The Offer in Compromise program is the most comprehensive resolution for tax debts. It’s the one you always hear about on the radio and television because, if approved, you could potentially settle for as little as a single dollar.
However, for the same reason, an OIC can be one of the most difficult resolution tactics to execute successfully. We all want to pay less in taxes, but in this instance, you must prove you should be eligible for the program through diligent record-keeping as well as a smart and savvy approach to negotiation.
If you owe more than $10,000 in back taxes, our attorneys might be able to help you reduce your liability by negotiating an offer in compromise with the IRS or state of Maryland on your behalf. Please complete this brief form or call us directly at (410) 793-1231 to schedule your free consultation. We have helped thousands of taxpayers reduce or eliminate their tax debt, and we would love to speak with you about your options for debt reconciliation with the IRS.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject. Please read our full disclaimer here.