The IRS will settle unpaid tax debt with taxpayers for less than the full amount owed through an agreement known as an Offer in Compromise (OIC). Thus, an offer in compromise may be a realistic option for taxpayers hoping to resolve a tax balance due. Taxpayers who consider applying for an offer in compromise must first determine if they are eligible. An experienced tax professional may provide invaluable services assisting taxpayers who need to determine and establish eligibility for an Offer in Compromise.
Offers in compromise are not the only options available to taxpayers to resolve their delinquent tax obligation. It is primarily for this reason that OICs are not available to everyone. Taxpayers who have the ability to fully pay their tax liabilities through an installment agreement or other option, generally will not qualify for an OIC. The IRS encourages and expects taxpayers to explore all other payment options before applying for an offer in compromise.
An offer in compromise may be a legitimate alternative for taxpayers who cannot pay their full tax liability or will suffer financial hardship if they make payment. The IRS considers each taxpayer’s unique set of factual circumstances related to their income, expenses, ability to pay, and equity in any owned assets.
Taxpayers must meet certain requirements before the IRS will even consider an OIC. These include an application fee and an initial or periodic payment. However, low-income taxpayers may qualify for a waiver of the application fee and initial or periodic payment.
To be eligible for an OIC, taxpayers must file all tax returns that they are legally required to file, make all required estimated tax payments for the current year, and make all required federal tax deposits for the current quarter. The IRS will not accept offers in compromise from current bankruptcy debtors or taxpayers that the IRS is currently auditing.
Taxpayers file two different application forms for an Offer in Compromise based on whether there is any dispute of the tax debt or amount thereof. The first is used if there is a genuine dispute as to the existence or amount of the correct tax debt. A second form is used if the taxpayer is unable to pay the amount due, has an economic hardship, or has another special circumstance that would cause paying the amount due to be unjust.
Taxpayers need to ensure their eligibility before submitting an OIC to the IRS. The IRS will return any newly filed Offer in Compromise application if a taxpayer has not filed all required tax returns and has not made any of the estimated payments as required. The IRS will return any application fee that was included with the OIC. It is important to note that the IRS will apply any initial payment required with the returned application to reduce the balance of delinquent taxes. This policy does not apply to a tax balance related to a tax return for the current year if the IRS has a valid extension on file for the individual taxpayer.
The IRS may accept an Offer in Compromise if it agrees that the amount of the tax debt may not be accurate, or the taxpayer has insufficient assets and income to pay the amount due. The IRS may also accept an OIC if because of a taxpayer’s exceptional circumstances, paying the amount due would cause an economic hardship or would be unjust.
If you are an individual taxpayer with delinquent tax debt searching for options, call The Gartzman Law Firm at (770) 939-7710.