Offer in Compromise

Step 1: What to expect

Summary

After completing this section of the Offer in Compromise Roadmap, you will understand what the Offer in Compromise program is and if it is your best option. You will also learn how the program works, what you can expect, how long it takes, and more.

The Internal Revenue Service (IRS) is the largest debt collection agency in the United States. They can be aggressive when perusing back-taxes that are owed to them.

Fortunately, you can enter into a formal settlement agreement with the IRS to pay less than your total tax owed. The program is called an Offer in Compromise (OIC) and is provided by the IRS to help taxpayers who cannot pay their total tax liability within a certain period of time.

Three variations of the Offer in Compromise program

In your situation, it is likely that you want to settle with the IRS because you believe you cannot pay your total tax liability. In other words, the tax debt is “unaffordable” and “uncollectible.” For all intents and purposes, this Roadmap will help you prepare, file, and negotiate a settlement with the IRS based on Doubt as to Collectability.

 

For more information on Doubt as to Liability OIC, click here.

For more information on an Effective tax Administration OIC, click here. 

How the OIC program works

Estimated Time to Complete OIC: 4-8 months

Costs involved (2 different payment options & an application fee)

After calculating your total offer amount, you will have two options to choose from for paying the offer amount:

  • Lump sum cash offer: you must pay the total offer amount in 5 or fewer payments within 5 or fewer months after the offer has been accepted by the IRS
  • Periodic payment offer: you must pay the total offer amount within 24 months after the offer has been accepted by the IRS

Application Fee

There is a $186 application fee that you will be sending in to the IRS with your paperwork. It is not refundable.

You can have the $186 application fee waived if you meet Low Income Certification guidelines.  If you opt out of sending the application fee to the IRS and the later determine that you did not qualify for Low Income Certification, they will request that you send a check for that amount.

There is a $186 application fee that you will be sending in to the IRS with your paperwork. It is not refundable.

You can have the $186 application fee waived if you meet Low Income Certification guidelines.  If you opt out of sending the application fee to the IRS and the later determine that you did not qualify for Low Income Certification, they will request that you send a check for that amount.

In addition, any tax refund you expect in the year that the OIC is accepted will be kept by the IRS

Offer in Compromise requirements

Before submitting an OIC, you need to make sure you’re ‘compliant’ with the IRS, otherwise the OIC will be automatically rejected. Here’s what you need to do first:

1). File all required tax returns with the Internal Revenue Service.
2). Make all required Estimated Tax payments for the current year.
3). If you have employees, you must make all required tax deposits for the current quarter.

Ongoing compliance after an Offer in Compromise

If the IRS accepts your offer, they will expect you to do the following:

  • Have no further delinquencies and follow the tax laws. In other words, you need to make sure to:
    • Timely file tax returns for the next 5 years
    • Timely pay taxes owed for the next 5 years
  • Make settlement payments on time

 

Not following these rules means that your offer will default. When an Offer in Compromise is in default, the IRS may collect amounts originally owed (which includes penalties and interest).

If your tax debt is expiring, do not submit an Offer in Compromise.

The IRS has a statute of limitations by which they can collect your back taxes. In other words, your tax debt can expire after a period of time and the IRS can no longer collect your back taxes. By submitting an Offer in Compromise, you are putting a temporary hold on collections on your account and also prolonging your expiration dates. 

Also, allowing your taxes to expire will completely eliminate taxes owed for that specific tax year. Having an Offer in Compromise accepted means the IRS will collect a reduced amount of taxes as opposed to none at all.