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Understanding more about the IRS and offers in compromise -- II

Back in October, our blog started discussing how the offer in compromise, or OIC, may be a viable solution for those individuals who are either unable to pay off their entire tax debt or who would face significant financial hardship if they were to pay the amount in full.

To recap, an OIC is essentially an agreement between the taxpayer and the Internal Revenue Service to settle a tax debt for less that than the amount owed. As promising as this option may seem, it's important to understand that 1) submission of an OIC in no way guarantees that the IRS will ultimately accept it, and 2) there are certain eligibility requirements that must be satisfied before an OIC will even be considered.

Another important issue that anyone considering an OIC as option must consider is that it will not only require the completion of otherwise complex tax forms, but also payment of a substantial -- and non-refundable -- application fee of $186.

Furthermore, the OIC submitted must outline a payment option and include an initial payment.

For instance, if you select the lump sum cash payment option, this initial payment will be 20 percent of the total offer with the remaining balance to be paid off in five or less payments within five or less months of acceptance by the IRS.

Conversely, if you select the periodic payment option, the initial payment will be whatever amount is stipulated in the terms of the OIC. However, it's important to note that monthly installment payments must continue to be while the IRS is mulling the OIC and that the failure to do this will result in the automatic rejection of the offer submitted.

The intended purpose of highlighting the not insubstantial costs and complex tax forms associated with an OIC is not to discourage people from considering it as an option, but rather to help set reasonable expectations and, more significantly, highlight just how beneficial the services of an experienced legal professional can be in this complicated area

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