Are you struggling to pay off your taxes? Are you facing a difficult financial situation? If so, you may wonder if the IRS Offer in Compromise is the right solution. This blog will provide an overview of the IRS Offer in Compromise basics, including eligibility criteria, how to apply, and more.
Overview of IRS Offer in Compromise
The IRS Offer in Compromise (OIC) program is an option that allows taxpayers who owe back taxes to settle their debt for a reduced amount. The offer in compromise can be a great option for taxpayers who are overwhelmed by their tax debt and cannot pay what is owed in full. It is important, however, to understand all the details of an offer in compromise before agreeing to it. A taxpayer should also be aware that an accepted offer in compromise is considered a taxable event and must be reported on their tax return.
Eligibility for IRS Offer in Compromise
To be eligible for an OIC, there are certain criteria that a taxpayer must meet. They include:
- The taxpayer must have filed all necessary returns;
- The taxpayer must be current on all estimated tax payments and not in an open bankruptcy proceeding;
- The taxpayer must demonstrate that they cannot pay the full amount of taxes owed;
- The taxpayer’s offer must reflect their ability to pay; and
- The taxpayer must comply with filing and payment requirements for five years before submitting an Offer in a Compromise application.
How to Apply for IRS Offer in Compromise
Once you have determined that you meet the eligibility requirements, you can apply for an Offer in Compromise. The first step is to submit Form 656, Offer in Compromise, and a $186 application fee. This form will require you to provide detailed information about your financial situation, such as income, expenses, assets, and liabilities. You will also need to submit supporting documentation, such as pay stubs, bank statements, and tax returns.
Pros and Cons of IRS Offer in Compromise
The biggest benefit of an Offer in Compromise is that it allows taxpayers to reduce their tax liabilities and settle with the IRS for an amount lesser than the full tax. This can be a great option for taxpayers who cannot pay the full taxes.
However, there are also some drawbacks to this option. For example, the process can be complex and time-consuming, and the IRS may reject your Offer in Compromise if they do not believe it is in their best interest. Additionally, if the IRS accepts your Offer in Compromise, any tax refunds you are entitled to in the future may be applied to your remaining tax debt.
Alternatives to IRS Offer in Compromise
If you cannot qualify for or are not interested in applying for an Offer in Compromise, other options are available to help you manage your tax debt. These alternatives include installment agreements, penalty abatement, and currently not collectible status. An installment agreement allows you to pay off your tax debt in monthly payments, while penalty abatement can help you reduce or eliminate certain penalties. Currently, not collectible status can help you temporarily suspend collection activities from the IRS.