If you are facing huge financial problems due to huge unpaid tax debt, filing an Offer in Compromise (OIC) to the Internal Revenue Service (IRS) could present the escape route you always wanted. An OIC allows you to settle your tax for less than the total amount you owe.
The OIC program was created by the IRS to relieve taxpayers with huge tax debt. The objective of the program is to accept a compromise when doing so is in the best interest of both the taxpayer and the government. This will promote voluntary compliance with all future payment and filing requirements.
However, to be eligible for the OIC program, the IRS must be convinced that you can’t pay your full tax liability or that doing so will create worse financial hardships than you are presently facing. To find out if you are eligible, the IRS assesses the following:
- The total amount you are owing in tax debt
- Your income (monthly or annually)
- Your expenses
- Your asset equity
Your OIC will most likely be accepted if the amount you offer to pay represents the most that the IRS can expect to collect within a reasonable period of time. Now, filing an OIC to the IRS is easy. Even though some taxpayers hire tax professionals and attorneys to handle it for them, it’s something you can do on your own. Here are the guidelines for filing an Offer in Compromise:
How to File an Offer in Compromise to IRS
1. Check your eligibility
While anyone with huge tax debt might want to consider filing an OIC, the program isn’t for everyone. The IRS assesses applicants based on the criteria listed above to ensure that they really qualify for an OIC. Before your offer can be considered at all, you must be current with all filing and payment requirements. If you are currently in an open bankruptcy proceeding, you are not eligible for an OIC until the proceeding is over.
Before sending in your offer, you can check your eligibility using the Offer in Compromise Pre-Qualifier tool available on the IRS website. This tool asks you a number of questions regarding your assets, income, tax debt, and expenses (the same criteria listed above) and then tells whether you are eligible for an OIC or not. If the tool rules you out as being ineligible, then there is no way you can have your OIC accepted.
Once you are sure of your eligibility of an OIC, submit your offer. You will find step-by-step instructions for submitting an offer in the Offer in Compromise Booklet Form 656-B. Note that you will be required to pay a non-refundable application fee of $186 as well as initial payment for your offer, which is also non-refundable.
2. Choose how you want to settle your debt
How much you will submit as your initial payment will vary based on your offer and the type of payment you choose. You can settle your tax debts either by paying a lump sum or through a series or periodic payments.
If you are opting to pay a lump sum, you will be required to submit an initial payment of 20 percent of the total offer amount with your application. For example, if you are owing $8,000 in tax debts and would like to file an offer to pay $5,000, you will need to submit 20 percent of $5,000 ($1,000) with your application.
But if you are opting for periodic payments, you will be required to submit your initial payment with your application. So, if you are offering to pay $5,000 out of your total tax debt of $8,000 and will be making the payment monthly for one year, that means you will be paying $417 per month for 12 months. In that case, you will submit $417 with your application.
Bear in mind, however, that these payments made alongside your application are non-refundable even if your OIC is rejected. That’s why you should check your eligibility, as this determines whether your application will be accepted or not.
However, if meet the Low Income Certification guidelines, you don’t have to send any payment during the evaluation of your offer. That is, you don’t have to pay the application fee or make any initial or installment payment. So, you have nothing to lose if your application is rejected.
By following these steps, you can have your tax debt reduced drastically by the IRS. You will find more information on how to go about the whole process on the IRS website. The whole process is so simple that you can handle it without professional assistance.