An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS to settle for less than the full amount owed. As the IRS does not usually forgive debts, this is as close to an amnesty program as the IRS gets, and it’s been greatly expanded in recent years as part of their Fresh Start Program.
Qualifying for an OIC can save you thousands of dollars in owed taxes, penalties, fees, and interest. However, it’s not easy to meet eligibility requirements for an OIC. The IRS isn’t looking to eliminate debt outright – instead, they’re attempting to help taxpayers who cannot otherwise pay off their debts, by allowing them to pay off as much as they can, without meeting total financial ruin.
To figure out whether you’re eligible for an Offer in Compromise, the IRS will require a comprehensive suite of financial and personal information. This information will be used to calculate your Reasonable Collection Potential (RCP), or the amount of money the IRS can roughly expect you to pay.
Before the Fresh Start Program, this RCP was usually calculated by multiplying a taxpayer’s discretionary monthly income by 60. Offers in Compromise were also reserved for individuals with a maximum total tax debt of $25,000. Today, the IRS only calculates roughly 12 to 24 months of discretionary income to determine your RCP and has expanded eligibility to total debt of $50,000.
There are other factors determining eligibility and what the IRS expects you to pay, and there may be application fees to consider if you aren’t eligible as a low-income taxpayer.
We offer a FREE IRS transcript investigation and analysis upfront – and a FREE pre-qualification consultation to see if you qualify for an Offer in Compromise. Most other firms do not do this, and the few that do, generally charge $1,500 for this service. We do this in advance for FREE because we want to make sure that we can help you upfront. We only take cases that we can help.
The IRS requires taxpayers to make the first move in requesting an Offer in Compromise. They will outright deny requests if these don’t meet their calculated RCP, and under most circumstances, your tax debt does not stop accumulating interest while the IRS deliberates your offer.
The IRS has up to two years to consider an Offer in Compromise before it is automatically accepted – however, you can expect to wait anywhere from four weeks to six months for them to complete their consideration. Furthermore, the IRS requires that you send in your first proposed payment with your Offer in Compromise form application, and depending on the payment plan you propose, they may ask you to continue making monthly payments during the deliberation process – making it very important to get your submission package right the first time.
Aside from meeting the IRS’s RCP (and having an RCP that is below your total tax debt), there are a few other requirements and considerations for an Offer in Compromise.
These include being up to date with all your tax returns and being up to date on all estimated tax payments for the current year. If you haven’t filed all legally-required returns or made any estimated payments this tax year, the IRS will automatically reject your offer, refund the application fee, and deduct the amount you sent them with the offer from your current tax debt.
Getting a settlement approved is not an easy task, and your submission package must be completed accurately and without any gaps. If you are not a good candidate for an IRS Offer in Compromise, we will discuss other available options that are best for you. Some of these options may include:
Beware of advertisers that claim tax debts can be settled through an Offer in Compromise program for “pennies on the dollar”, without them taking you through a thorough pre-qualification process first, and without checking out the firm’s references and client testimonials regarding success stories with the process.
The Offer in Compromise is not a silver bullet against IRS tax debt – it can, however, help taxpayers struggling under an enormous tax liability try to get their life back through a reasonable payment plan, negotiated with the IRS through a reputable tax firm. Contact us today to find out if you’re eligible for an Offer in Compromise.
Settle for less & Protect your assets
Never Call the IRS without Speaking with our Pros First!