Offer in Compromise FAQ’s
The offer amount is determined by future income and fair market value in your assets. When applying for an Offer In Compromise, taxpayers may choose from two forms of payment. The first option is a lump sum payment, which allows debtors to pay 20% of the offer upfront with the remaining balance to be paid off in monthly increments within five months of the acceptance. The second payment option is a periodic payment plan in which debtors may submit their first payment along with the offer and given six to 24 months to pay off the remaining balance.
An Offer In Compromise (OIC) has many beneficial effects that include, but are not limited to:
• Avoiding bankruptcy
• Releases federal tax liens
• Reduces tax liability
• Suspends collection action
• Settles back tax liability
In order to qualify for an Offer In Compromise, taxpayers must meet the following requirements:
• Taxpayer must have received a bill for at least one tax debt and include said bill on the offer
• Taxpayer must have filed all tax returns
• Taxpayer must make all required estimated tax payments for the current year if self-employed.
• If a business owner with employees, taxpayers must make all required federal tax deposits for the current quarter.
Additionally, taxpayers must be able to prove that one of the following reasons is applicable to their situation:
• Taxpayer cannot pay back the full amount owed, known as doubt to collectability.
• Taxpayer does not actually owe any debt, known as doubt to liability.
• Taxpayer is in a unique situation in which an offer would be in the best interest of the individual and the IRS, known as effective tax administration.
The IRS offers a prequalifying tool help individuals determine their eligibility for an Offer In Compromise (OIC).
An Offer In Compromise will not affect your credit. Credit companies do not have access to your offer. However, once your offer has been accepted and paid off then any tax lien you have should be released. In order to have the credit company generate an accurate credit report, individuals must contact the company and verify the released lien is added to the report.
The IRS acceptance rate for Offers In Compromise is roughly 40%, with numbers rising each year. In order to ensure optimal results when filing an Offer In Compromise, acquire the services of an experienced tax professional. In the last few years, under the Fresh Start initiative, the IRS has lessened some of its restrictions to allow more offers to be accepted.
Although it is possible to submit an Offer In Compromise on your own and have it accepted, we advise against doing so. Retaining the services of a licensed tax professional can improve an individual's chances of acceptance. A qualified tax professional will have in depth knowledge of the tax code and can properly guide taxpayers towards an appropriate structured resolution.
Once you have submitted your application for an Offer In Compromise, it can take anywhere from six to nine months for the IRS to make a decision. If you have retained the services of a tax professional, your chosen professional should keep you updated with any news regarding your offer. If you have submitted an application on your own and it has been two months since your submission, contact the IRS to check on the process.