A “Fresh Start – Offer In Compromise” With the IRS

Through the Offer in Compromise program, the IRS can help relieve a taxpayer’s debt burden by eliminating a huge chunk of the money owed through an enormous discount. Although those who owe back taxes see this as a favorable solution, it is highly advised to seek the help of a tax attorney to make sure if you qualify and that your application is likely to be accepted.

How Do You Know If You Qualify For OIC?

The IRS accepts approximately a quarter of submissions and they will not accept your Offer in Compromise claim if they believe that you are able to pay the amount owed in full. If you are looking to qualify for an Offer in Compromise consideration the IRS looks into a few conditions:

  • They have considerable doubt that they will be able to collect the money owed, either at the current time or in the near future
  • The act of paying back taxes in full will leave you in economic hardship
  • Your financial documents – income, expenses and asset equity
  • You are up to date with all your tax return filings
  • Have no open bankruptcy case

Once the IRS looks into the above conditions, they will consider your Offer in Compromise and either approve or not.

Applying For Offer in Compromise

The first step in an OIC is to fill out and submit the Offer in Compromise Booklet with an attached non-refundable application fee of $186 (this fee might be exempt if your monthly income falls below the poverty guidelines). Within the booklet you will find Form 656, which is a proposition to the IRS that you are agreeing to pay them back a certain amount of money. When completing Form 656 you will also need to send your first payment (non-refundable) which will be based to the type of payment option you elect.

There are two payment options:

  • Lump Sum Cash – this means you will send a 20% down payment based on the amount you offered to pay back the IRS. Once your application is approved, you agree to pay off the remaining balance within five or less payments.
  • Periodic Payment – this means you agree to pay back in full the offered amount in monthly installments. You must send your first payment and pay off the rest in 6 to 24 months.

Within the OIC Booklet you will also find Form 433-A (or Form 433-B for businesses) which requires you document your financial situation, giving the IRS a clear picture of where you stand financially so they can calculate a “reasonable collection potential” and determine the best way of collecting the money that is owed.

If you want the IRS to approve your Offer in Compromise, you must make sure you are completely accurate when completing Form 433-A and that the offer you present to the IRS at least matches or is more than your reasonable collection potential.

Financial documents that you will need to present:

    • Pay stubs from at least the past 3 months
    • Bank statements from the past 3 months
    • Everyday home expenses for the past 3 months
    • Recent mortgage and investment statements

*Seek the services of a local tax attorney to help you fill out the necessary forms properly.

How Long Till An OIC Is Approved?

Everyone’s tax case is different and there is no set time frame in which the IRS will either approve or deny your OIC application but once your application is submitted expect for the IRS to take from six to twelve months. Remember that no two cases are the same but if the IRS has not responded to your claim within two years of your submission date then you are automatically approved.

If your Offer in Compromise is denied, you have the choice of filing a new OIC application or file a former appeal within 30 days of the rejection date by submitting Form 13711 (Request for Appeal of Offer in Compromise). If your application was rejected it could mean that the offer propositioned to the IRS was too low based on the financial documentation you presented or you have convicted of a serious crime. If you choose not to file an appeal or submit a new OIC application, speak with a tax attorney to learn about other tax debt relief solutions such as an installment agreement.