Offer In Compromise
An offer in compromise (OIC) is a unique settlement option where the IRS agrees to accept less than a taxpayer actually owes. For taxpayers that feel the assessed amount of their tax bill was unfair or for those who may never be able to pay their entire tax bill due to a financial hardship, this could be an attainable settlement option.
Do You Qualify for an Offer in Compromise?
In the Offer in Compromise program you can settle your debt with the IRS. It allows taxpayers to settle with the IRS on tax debt that has been incorrectly assessed or for liabilities they cannot afford to pay.
The IRS Code states: "We will accept an Offer in Compromise when it is unlikely that we can collect the full amount owed and the amount you offer reasonably reflects the collection potential..." (Internal Revenue Code section 7122).
Disputing the Liability
Sometimes it is possible to completely eliminate the taxes you owe - including all penalties and interest - at an enormous discount. There is no preset bottom limit that the IRS will accept to settle your debt especially if your offer is done "right."
To qualify for this provision, a taxpayer must show sufficient evidence that the assessed tax liability is incorrect.
Doubt as to Ability to Pay
This may be used once a taxpayer can show that they cannot pay their tax debt and the IRS probably never will recover the full amount.
Effective Tax Administration
If the taxpayer is elderly or in very poor health and can't work they may qualify under this option.
Types of Offers in Compromise
There are a few main types of offers. The actual payment will be calculated based on your income, expenses and asset equity.
Lump Sum Cash Offer
This is the most common and least costly type of payment option. To establish the amount to be paid, the IRS calculates the taxpayer's future earning potential and determines a net available income by comparing gross income and allowable expenses.
Short Term Period Payment Offer
This payment option requires the taxpayer to pay the debt off through monthly payments over a 24 month period. Although they will have more time to pay off the debt, the total offer amount will be higher than the Lump Sum Cash Offer.
Deferred Payment Offer
This is the most costly type of offer and doesn’t always provide a significant benefit to the taxpayer. It allows the person to make monthly payments based on their calculated net available income over a longer period of time, but they will continue paying for as long as it takes to pay off the debt.