The IRS provides payment alternatives for any taxpayer with delinquent taxes. The requirements of these programs can be complicated and may require the assistance of a qualified tax professional. The IRS suggests such assistance may be useful in helping taxpayers explore all their payment options. An offer-in-compromise (OIC) is one such option often used by taxpayers to settle their tax debt in full.
For taxpayers to be considered for an OIC, they must make a reasonable offer based on what the IRS considers their true ability to pay their tax debt. Thus, an offer in compromise is a viable option for taxpayers who cannot pay their tax liability in full, or in doing so suffer financial hardship.
The IRS considers a taxpayer’s unique set of facts and circumstances, including the ability to pay, income, expenses, and equity in any real and personal property assets. An Offer in Compromise will be approved if the amount represents the greatest sum of money the IRS expects to collect within a reasonable time. Generally, the IRS will not accept an OIC if a taxpayer can pay the tax debt in full through an installment agreement or has sufficient equity in assets to pay the debt.
Because the OIC program is not for everyone, the IRS suggests that taxpayers explore all other payment options before submitting an Offer in Compromise. Taxpayers should seek a tax debt solution that best fits their financial situation. A tax attorney can review a taxpayer’s distinct set of circumstances and help find the best tax resolution option, whether an Offer in Compromise, installment agreement, or even some other alternative.
Before the IRS will consider an Offer-In-Compromise, a taxpayer must:
- file all tax returns that are legally required;
- have received a bill for at least one tax debt included on the OIC;
- make all required estimated tax payments for the current year, and
- make all required federal tax deposits for the current quarter if a business owner with employees.
The IRS will immediately return the OIC without further consideration if a taxpayer has not filed all tax returns that are past due and legally required to have been filed. If the IRS determines a taxpayer has not filed all tax returns as legally required, the IRS will apply any initial payment sent with an OIC to the taxpayer’s tax debt and return both the offer and application fee. This decision is not subject to appeal by taxpayers.
Any taxpayer or business of a taxpayer that is currently in an open bankruptcy proceeding is not eligible to apply for an Offer-In-Compromise. The settlement of any outstanding tax debts must occur within the bankruptcy proceeding in most cases.