An offer in compromise (OIC) is a program designed by the IRS that allows the taxpayer to settle his or her substantial tax liabilities for less than the full amount owed.
This may be the only available and legitimate option if a taxpayer can’t pay his or her tax liability in full or doing so will create a financial hardship.
There are certain measures and circumstances that are taken into consideration for the acceptance of an Offer In Compromise such as:
The IRS will not consider the process of an Offer In compromise if the taxpayer submitting the application is not in compliance with all required tax return filings or if the taxpayer has not been making all required estimated tax payments on time.
Application fees of $205.00 and a deposit of 20% of the Offer In Compromise amount must be sent with all required information in the OIC package.
Applicants that meet the low-Income Certification guidelines do not have to send the application fee.
During Offer In compromise process and the evaluation of it, the following events might occur:
If the IRS does not decide of the OIC acceptance within two years of the IRS receipt date, the OIC submitted is automatically accepted.
Once the Offer in compromise gets accepted the taxpayer is now to meet all of the OIC terms, mainly, file all future required tax returns and payroll quarterly reports (in case of a company with employees), and make all require payments including estimated tax payments for self-employees and companies with payroll.
Normally, the IRS’s ability to engage in collection actions is suspended during the time the OIC is pending, for 30 days after the IRS rejects an OIC, and for the time the IRS Independent Office of Appeals considers a timely appealed rejection.
The taxpayer will have committed to fully comply with the tax laws if the IRS approves the taxpayer’s offer. Any refunds, including interest, that are due for tax periods that continue beyond the calendar year in which the IRS accepts the offer will be kept by the IRS. If the taxpayer fails to comply with all of the OIC’s terms and conditions, the IRS may declare the OIC to be in default. The terms and conditions include a requirement that the taxpayer timely file all tax returns and timely pay all taxes for 5 years from the date of acceptance of the OIC if there is any uncertainty about collectibility or effective tax administration. When the IRS cancels an OIC, the agreement is no longer in effect, and the IRS is free to collect the original sums owed (minus any payments made), plus interest and penalties.
The taxpayer will be notified via mail if the IRS rejects the OIC. The letter will outline why the IRS rejected the offer and how the taxpayer can appeal the decision to the IRS Independent Office of Appeals. Within 30 days of receiving the letter, you must file an appeal.
Because the taxpayer failed to submit required information, filed for bankruptcy, failed to include a required application fee or nonrefundable payment with the offer, hasn’t filed required tax returns, or hasn’t paid current tax liabilities at the time the IRS is considering the offer, an OIC is sometimes returned to the taxpayer rather than being rejected. When the IRS returns an offer, it is not the same as a rejection because there is no ability to appeal. The offer may be resubmitted once the condition has been resolved.
