How to Accept an Offer in Compromise with the IRS

Understanding an Offer in Compromise

An Offer in Compromise (OIC) is a formal agreement between a taxpayer and the Internal Revenue Service (IRS) that settles the taxpayer’s tax debt for less than the full amount owed. The IRS may consider an OIC if the taxpayer can demonstrate that they are unable to pay the full amount of their tax liability or that doing so would create a financial hardship.

Eligibility for an OIC

To be eligible for an OIC, taxpayers must meet certain criteria, including:

  • Having filed all required tax returns
  • Being current with estimated tax payments or withholding
  • Not being in an open bankruptcy proceeding
  • Having a valid extension for a current year return (if applying for the current year)
  • If the taxpayer is an employer, they must have made tax deposits for the current and past 2 quarters before applying

Submitting an OIC Application

Taxpayers who meet the eligibility criteria can submit an OIC application by completing Form 656, Offer in Compromise Booklet. The application must include:

  • A detailed explanation of the taxpayer’s financial situation, including income, expenses, and assets
  • A proposed offer amount and payment plan
  • A non-refundable application fee of $205
  • An initial payment, which varies depending on the payment option chosen

IRS Review Process

Once the IRS receives an OIC application, it will review the taxpayer’s financial situation and determine whether the offer is acceptable. The IRS may request additional information or documentation during this process.

Acceptance of an OIC

If the IRS accepts the OIC, the taxpayer will receive written confirmation. The taxpayer must then comply with the terms of the offer, including making all required payments.

Rejection of an OIC

If the IRS rejects the OIC, the taxpayer may appeal the decision within 30 days. The taxpayer can also request a hearing with the IRS Independent Office of Appeals.

Benefits of an OIC

An OIC can provide several benefits to taxpayers, including:

  • Reducing the amount of tax debt owed
  • Stopping collection activities, such as wage garnishments or bank levies
  • Extending the statute of limitations for collection
  • Improving the taxpayer’s credit score

Considerations Before Submitting an OIC

Before submitting an OIC application, taxpayers should carefully consider the following:

  • The likelihood of the IRS accepting the offer
  • The potential impact on the taxpayer’s credit score
  • The availability of other payment options, such as an installment agreement

Seeking Professional Assistance

Taxpayers who are considering submitting an OIC may benefit from seeking professional assistance from a tax attorney or accountant. These professionals can help taxpayers evaluate their eligibility, prepare the application, and negotiate with the IRS.

Offer in Compromise 2023: How to Qualify and Submit Your Offer to the IRS

FAQ

How do I get the IRS to accept an offer in compromise?

You must provide a written statement explaining why the tax debt or portion of the tax debt is incorrect. In addition, you must provide supporting documentation or evidence that will help the IRS identify the reason(s) you doubt the accuracy of the tax debt.

How likely is the IRS to accept an offer in compromise?

In most cases, the IRS won’t accept an OIC unless the amount offered by a taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay.

How long does it take to get an offer in compromise accepted?

How long will it take to get a decision on my OIC? Generally, if the CDTFA accepts your OIC for processing, the CDTFA will have a decision to you within 180 days after receiving your offer. If your account is more complex, it may take longer than 180 days.

How much do you pay the IRS with an offer in compromise?

With a lump-sum payment, you will fill out IRS Form 656 and a non-refundable payment equal to 20 percent of the offer amount, along with the application fee. Even if your offer is denied, the nonrefundable 20 percent payment will be put toward your tax liability.

How do I get an IRS offer in compromise?

An application for an IRS offer in compromise has three parts: Completed IRS forms 433-A and 656. If you believe the tax debt isn’t yours or doesn’t actually exist, you can also file Form 656-L. A $205 application fee, which is nonrefundable, but may be waived if you meet the IRS low-income guidelines.

What happens if my offer in compromise is accepted?

If your offer in compromise is accepted: You must pay the offer amount in accordance with the terms of your acceptance agreement. The IRS will keep any tax refund, including interest due, as the result of an overpayment of any tax or other liability due through the calendar year the IRS accepts your offer in compromise.

How do I apply for an offer in compromise?

You must use the April 2023 version of Form 656-B, Offer in Compromise Booklet PDF. Before you apply, you must make federal tax deposits for the current and past 2 quarters. An offer in compromise allows you to settle your tax debt for less than the full amount you owe.

What is an offer in compromise?

An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or doing so creates a financial hardship. We consider your unique set of facts and circumstances:

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