An OIC is an agreement between a taxpayer and the IRS that allows for the settlement of outstanding tax liabilities for less than what is owed. This type of agreement can be a great option for taxpayers who are unable to pay their full tax debt, as it allows them to make one lump sum payment (or series of payments) in exchange for settling their debt.
When submitting an OIC, taxpayers must provide proof of their financial situation and demonstrate that they cannot afford to pay the entire balance of tax owed. Taxpayers must prove to the IRS that the Reasonable Collection Potential (RCP) – the total amount of tax the IRS can reasonably expect to collect over the remaining time on the tax collection statute – is less than the tax owed. Taxpayers will need to provide documents to prove that their RCP is less than the tax owed and therefore eligible for an OIC. Once the OIC is submitted it can take nine to 15 months for the IRS to accept reject the offer. If accepted, taxpayers can make a single lump sum payment or may opt for a short-term monthly payment plan arrangement.
To qualify for an OIC, taxpayers must meet certain eligibility requirements. These include being up-to-date with all tax filing requirements and not having any open bankruptcy cases against them. Taxpayers must also be up-to-date with their estimated tax payments. Additionally, taxpayers should be aware that any money paid from the offer is used to pay the tax owed. Lastly, taxpayers must maintain tax compliance for five years following the acceptance of the OIC. If they do not maintain tax compliance (filing tax returns on time and making estimated tax payments), the IRS can terminate the OIC, reinstate the full balance of the tax owed, and begin collection proceedings again.
An Offer-in Compromise (OIC) can provide much needed relief when it comes to settling unpaid taxes with the IRS, however it is important to remember that not everyone qualifies for this program and applicants should carefully review all eligibility requirements before submitting an OIC. Additionally, anyone considering an OIC should consult with a qualified Tax Resolution Specialist who can assist in determining whether this type of solution will work best for their situation. With proper guidance, settling your tax debt could become significantly easier with an approved OIC from the IRS!
If you or anyone you know has a tax issue with the Internal Revenue Service or the Indiana Department of Revenue, please schedule a phone or in-person consultation today. Your tax issues won’t go away on their own, but with the help of an experienced Tax Resolution Specialist, you can put your tax problems behind you once and for all.
Patrick H. Wanzer, CPA, CTRS