Will the IRS Take Less Than You Owe? Exploring the Offer in Compromise Program

Navigating tax debt can be a daunting task, especially when the burden of your financial obligations seems insurmountable. The Internal Revenue Service (IRS) recognizes the challenges taxpayers may face and offers a potential solution through its Offer in Compromise (OIC) program. This program allows eligible individuals and businesses to settle their tax debts for less than the full amount owed, providing a lifeline to those struggling to meet their tax obligations.

Understanding the Offer in Compromise Program

The OIC program is designed to provide relief to taxpayers who are unable to pay their tax debts in full or for whom doing so would create a significant financial hardship. The IRS considers a variety of factors when evaluating an OIC application, including the taxpayer’s income, expenses, assets, and ability to pay.

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

• Having filed all required tax returns
• Not being in an open bankruptcy proceeding
• Having a valid extension for a current year return (if applying for the current year)
• Being an employer who has made tax deposits for the current and past two quarters (if applicable)

Determining Eligibility and Preparing an Offer

Before submitting an OIC application, taxpayers are encouraged to use the IRS’s Offer in Compromise Pre-Qualifier Tool to assess their eligibility and prepare a preliminary proposal. This tool provides valuable insights into the likelihood of an offer being accepted and helps taxpayers determine if they meet the program’s eligibility requirements.

To submit an OIC application, taxpayers must complete Form 656, Offer in Compromise Booklet, and provide supporting documentation that demonstrates their financial situation. The application package should include:

• Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses
• Form 656 for each tax debt being offered
• A $205 non-refundable application fee
• An initial payment (non-refundable) for each Form 656

Payment Options and the Offer Process

Taxpayers have two options for making payments under an OIC:

• Lump Sum Cash: Submit an initial payment of 20% of the total offer amount with the application. If the offer is accepted, the remaining balance must be paid in five or fewer payments.
• Periodic Payment: Submit an initial payment with the application and continue making monthly installments while the IRS considers the offer. If the offer is accepted, monthly payments will continue until the offer is paid in full.

During the evaluation process, the IRS may take certain actions, including filing a Notice of Federal Tax Lien and suspending other collection activities. Taxpayers are expected to continue making payments as per the terms of their offer.

Acceptance and Rejection of Offers

The IRS has two years from the date of receipt to make a determination on an OIC application. If the IRS does not make a decision within this timeframe, the offer is automatically accepted.

If an offer is accepted, the taxpayer must comply with all the terms of the agreement, including filing all required tax returns and making all payments. The IRS will not release any federal tax liens until the offer terms are satisfied.

If an offer is rejected, the taxpayer may appeal the decision within 30 days using Form 13711, Request for Appeal of Offer in Compromise. The IRS Independent Office of Appeals provides additional assistance to taxpayers who wish to appeal a rejected offer.

The IRS Offer in Compromise program offers a potential lifeline to taxpayers who are struggling to meet their tax obligations. By carefully considering their eligibility, preparing a compelling application, and understanding the payment options and process, taxpayers can increase their chances of successfully settling their tax debts for less than the full amount owed.