Offers in Compromise

Offers in Compromise Related Information:

An IRS Offer in Compromise is a payment plan authorized under the Internal Revenue Code (Sec 7122) and is referred to as an ‘offer’ or an OIC. Under the OIC, you can get a huge discount on your outstanding tax bill from the IRS. Sometimes you may have to pay just 1% of your tax arrears and your tax slate will be wiped clean by the IRS. Such a discount scheme of the IRS is known as an Offer in Compromise (OIC).

Qualification for an Offer in Compromise

Everyone would love to get their tax bill reduced by the IRS. But you do not have an inherent legal right to an OIC. It all depends on the IRS and it is up to them who they give an OIC to. But if you can fulfill any of the following two conditions, then the IRS has to entertain your request for an OIC.

• Doubt as to collectibility: If there is any uncertainty that the IRS will not be able to recover the tax bill from you even in the future, due to any reason, then you can qualify for an OIC.
• Doubt as to liability: If you can show that there is some misgiving about your liability in the tax bill or that there is any discrepancy in the amount, then too you can qualify for an OIC.

Even if you cannot show any of the above considerations to be true in your case, you can still file for an OIC with the IRS. It is the duty of the IRS to at least give some consideration to all correctly filed applications.

Making an Offer in Compromise

The minimum offer that you make in the OIC should be the sum of the following two things:

• Realizable Asset Value: This refers to the amount that the IRS would get if it sells off your assets and deducts any expenses (such as a mortgage) from it. You can calculate this value by using the ‘quick sale value’ which is about 20% less than the fair market worth of the assets.
• Future Income: This is the amount which is reached by subtracting all your essential living expenses from your monthly paycheck. This amount is then multiplied by a multiplier number that depends on which payment plan you choose.

Thus, if your realizable asset value comes to $5,000 and your future income is calculated as $15,000, then the OIC should be for at least $20,000.

Tips for Filing an OIC

Most OIC are rejected by the IRS as they are not filed correctly. Here are some tips to help you in submitting an OIC so that you have the best chance of it being accepted by the IRS.

• Fill the entire form out completely and do not leave any detail unanswered. You will be required to give your social security number, employer identification number, marital status (married, single, or divorced), and also if your spouse is included in the liability for the payment. Ensure that you are using the most current form.
• Classify and put down all your tax liabilities. File two separate offer forms for personal and business taxes. Split each type of tax and also the tax period.
• Offer the full realizable value of your assets or else the IRS will not accept your request for an OIC.
• Do not modify the form in any manner. The IRS will not entertain your offer if you have changed or cancelled any of the preprinted items.
• Remember to sign the form. If you and your spouse are proposing an offer together, you both must sign the form.