The Internal Revenue Service (IRS) offers a program known as the Offer in Compromise (OIC) that allows taxpayers to settle their outstanding tax liabilities for less than the full amount owed. This program is designed to aid taxpayers who are unable to pay their full tax liabilities due to financial hardship, insolvency, or other special circumstances. The success of an OIC application heavily depends on properly understanding and completing the IRS Offer in Compromise Form.
Key Features of the IRS Offer in Compromise
The IRS considers various factors before accepting an OIC, including the taxpayer’s ability to pay, income, expenses, and asset equity. The goal is to reach an agreement that is in the best interest of both the taxpayer and the IRS. To initiate the process, taxpayers must submit the IRS Offer in Compromise Form (Form 656), along with detailed financial records using Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses.
Eligibility Criteria for Filing an Offer in Compromise
To apply for an OIC, taxpayers must:
- Ensure all tax returns are filed up to date.
- Make all required estimated tax payments for the current year.
- Not be in an open bankruptcy proceeding.
- Verify that none of the taxes involved in the compromise are due to fraudulent actions.
How to Complete the IRS Offer in Compromise Form
The IRS Offer in Compromise Form is a detailed document where the taxpayer must provide comprehensive financial information. This includes:
- Total household income.
- Monthly living expenses.
- Information on assets such as properties, vehicles, and bank accounts.
Accurately reporting this information is crucial as it determines the ‘reasonable collection potential’ that the IRS uses to make a decision on the OIC.
The Process of Submitting an Offer in Compromise
- Preparation:
- Gather financial documentation and ensure compliance with all IRS filing requirements.
- Completion of Forms:
- Fill out the IRS Offer in Compromise Form along with the necessary additional documentation.
- Submission and Payment:
- Submit the form along with the initial payment and the application fee, unless exempt due to low income.
- IRS Review:
- The IRS reviews the submitted forms and financial information to determine if the offer matches the reasonable collection potential.
- Decision:
- If accepted, the taxpayer must comply with all terms of the agreement. If rejected, there is an option to appeal the decision within 30 days.
Benefits of an Offer in Compromise
- Reduction in Total Tax Liability: Taxpayers can reduce their total debt to a manageable amount.
- Prevention of Collection Actions: Once an OIC is accepted, the IRS generally suspends other collection activities.
- Fresh Financial Start: Successfully negotiating an OIC allows taxpayers to reset their financial situations.
Schedule Your Free Consultation Today
Our tax debt attorney specializes in IRS debt resolution and can help taxpayers navigate the complex process of filing for an Offer in Compromise. Our expertise includes preparing accurate documentation, negotiating with the IRS, and providing guidance through the appeal process if necessary. Don’t navigate this challenging process alone; contact Legal Tax Defense for a free consultation to discuss your specific tax situation and explore your options for an IRS Offer in Compromise. Start your journey towards financial relief today.
