An Offer in Compromise (OIC) is a program offered by the Internal Revenue Service (IRS) that allows taxpayers to settle their tax debt for less than the full amount owed. This program is designed to help taxpayers who cannot pay their full tax debt due to economic hardship. However, not all taxpayers are eligible for an OIC.

How to Get an IRS Offer in Compromise (OIC): Eligibility Conditions

Here are the conditions required to get an offer in compromise from the IRS:

1. The Taxpayer Must Have Filed All Tax Returns

Before the IRS considers an OIC application, taxpayers must have filed all their tax returns. This means that the taxpayer must be up-to-date with all their tax obligations. Filing all tax returns also allows the IRS to determine the full extent of the taxpayer’s tax liability.

2. The Taxpayer Must Have Made All Required Estimated Tax Payments

If the taxpayer is self-employed or has other sources of income that are not subject to withholding, they may be required to make estimated tax payments throughout the year. To be eligible for an OIC, the taxpayer must have made all required estimated tax payments for the current year.

3. The Taxpayer Must Not Be in an Open Bankruptcy Proceeding

If the taxpayer is in an open bankruptcy proceeding, they are not eligible for an OIC. This is because the bankruptcy court can determine how the taxpayer’s assets and liabilities will be handled, including any tax debts.

4. The Taxpayer Must Be Able to Prove Financial Hardship

To be eligible for an OIC, the taxpayer must be able to prove that paying their full tax debt would cause them financial hardship. The taxpayer must provide detailed financial information to the IRS, including their income, expenses, assets, and liabilities.

5. The Taxpayer Must Not Have the Ability to Pay Their Full Tax Debt

The IRS will only consider an OIC if the taxpayer cannot pay their full tax debt. This means that the taxpayer’s income and assets must be less than the total amount owed to the IRS. The IRS will review taxpayers’ financial information to determine their ability to pay.

6. The Taxpayer Must Be Current on All Tax Payments

If the taxpayer is currently making payments on a previous OIC or installment agreement, they must be up-to-date on all payments before the IRS considers a new OIC. This means the taxpayer must make all payments on time and in full.

7. The Taxpayer Must Comply with All Tax Laws

To be eligible for an OIC, the taxpayer must comply with all tax laws. This means that the taxpayer must file all tax returns on time, pay all taxes owed on time, and not engage in any illegal activities related to taxes.

How to Apply for an Offer in Compromise?

To apply for an IRS offer in compromise, you need to follow a few steps. First, determine if you are eligible by filling out Form 656, Offer in Compromise. Next, complete Form 433-A or Form 433-B to provide details about your financial situation. Include all necessary supporting documents, such as bank statements and pay stubs.

Pay the application fee and initial payment, if required. If your offer is accepted, you must meet the terms of the agreement, including making payments on time and filing your tax bills correctly for the next five years. It is essential to carefully review all the requirements and seek professional guidance if necessary to ensure a successful application.

What Happens When IRS Accepts your Offer in Compromise?

When the IRS accepts your Offer in Compromise, it means that they have agreed to settle your tax debt for less than the full amount you owe. This can provide significant relief, as it allows you to pay off your tax debt for a reduced amount (offer amount)  and avoid further collection actions from the IRS. However, it’s important to note that the IRS acceptance of your offer is not guaranteed, and you must meet certain eligibility requirements and provide accurate financial information for the offer to be approved.

What Happens When IRS Rejects your Offer in Compromise?

When the IRS rejects your Offer in Compromise, it means that they are not willing to accept your proposed settlement for your outstanding tax debt. There can be several reasons for this rejection, such as incomplete documentation or the belief that you can pay the full amount owed. If your offer is rejected, you have the option to appeal the decision within 30 days. It’s important to understand the reason for rejection and take the necessary steps to rectify the situation.

Conclusion

Getting an offer in compromise from the IRS is not an easy process. Taxpayers must meet strict conditions before the IRS considers an OIC. Taxpayers must file all tax returns, make all required estimated tax payments, not be in an open bankruptcy proceeding, prove financial hardship (difficulty in fulfilling living expenses), be unable to pay their full tax debt, be current on all  tax payments, and comply with all tax laws. If a taxpayer meets these conditions, they may be able to settle their tax debt for less than the full amount owed.

Law Offices of Stephen B. Kass. P.C. offers professional law and CPA services to deal with tax settlements, IRS negotiations, and business bankruptcy. If you need an Offer In Compromise service in New York, we’ve got you covered! Get in touch with us today and let’s talk.