The Internal Revenue Service (IRS) deals with all the tax-related problems and issues and is known for keeping a record of the taxpayers. People facing tax debt issues often find themselves in severe trouble, which can be financially and emotionally stressful.
Do you want to settle your tax debt for less than what you owe? If you struggle to pay your taxes and face financial hardship, you may qualify for an Offer in Compromise (OIC) from the IRS. An OIC is a way to reduce your tax liability and avoid further penalties and interest. However, applying for an OIC can be complicated and time-consuming, and only some are eligible. That’s why you need the help of a professional tax relief company like Tax Hardship Center. We have the experience and expertise to guide you through the OIC process and negotiate the best possible outcome. Contact us today for a free consultation and see if you can benefit from an OIC.
An Offer in Compromise (OIC) is such an offer that is designed for the taxpayers when they fail to clear off the tax debt. This offer is a life-saving drug for needy people facing tax-related issues. In this article, we shall talk all about the IRS Offer in Compromise process.
What is an Offer in Compromise?
An Offer in Compromise is an agreement between the IRS and the taxpayer that allows them to pay less of the total tax they owe to the government. This type of case can only be considered when the taxpayer can show legitimate proof regarding the inability to pay the taxes, as paying them would result in a financial imbalance. Sometimes, more funds are needed to clear the tax amount. Only some people are granted the OIC offer by the IRS as they heavily investigate such situations and finally give their final decision regarding the agreement of the OIC.
Eligibility criteria for OIC
Understanding the eligibility criteria becomes paramount when contemplating an Offer in Compromise (OIC) with the Internal Revenue Service (IRS). The IRS meticulously assesses various factors to determine if an individual qualifies for this tax debt resolution option.
Financial Stability Examination
The IRS delves into the financial stability of the taxpayer, scrutinizing income, expenses, and overall financial condition. The goal is to establish whether paying the entire tax amount would lead to a genuine financial imbalance for the individual. Thoroughly document your financial standing, providing clear evidence to substantiate your claims.
Income Stability Analysis
Income stability plays a pivotal role in OIC eligibility. The IRS evaluates the consistency of your income, considering fluctuations, trends, and potential changes. Highlighting any irregularities or uncertainties in your income can bolster your case for OIC acceptance.
Assets and Liabilities Assessment
The IRS examines an individual’s assets and liabilities as part of the eligibility criteria. This includes a comprehensive evaluation of financial tools, possessions, and outstanding debts. Transparency in disclosing all relevant assets and liabilities is crucial for a thorough assessment.
Proof of Inability to Pay
Central to OIC eligibility is the demonstration of an inability to pay the total tax debt. Providing compelling proof, such as detailed financial statements, records of monthly expenses, and evidence of outstanding debts, is essential. The IRS seeks a clear picture of your financial constraints to make an informed decision.
Reasonable Collection Potential (RCP) Determination
The IRS calculates the Reasonable Collection Potential (RCP) to gauge your ability to repay the tax debt. This involves an intricate analysis of your financial situation, aiming to establish the maximum amount the IRS can reasonably expect to collect from you. Understanding how the IRS determines RCP is vital for navigating the OIC process effectively.
Types of Offers of Offer in Compromise
Understanding the distinct offer types is crucial when considering an IRS Offer in Compromise (OIC). Each offer addresses unique circumstances and demands a tailored approach. Delve into the intricacies of the three primary types to grasp eligibility criteria and nuances.
Doubt as to Liability (DATL)
The Doubt as to Liability (DATL) offer is a recourse for those challenging IRS assessments. This offer hinges on disputing inaccurate tax evaluations. Successfully filing a DATL offer requires a conviction that the IRS erred in its assessment and compelling evidence to substantiate the claim. Navigate the DATL process with precision, armed with irrefutable proof.
Doubt as to Collectibility (DATC)
The Doubt as to Collectibility (DATC) offer is the most commonly utilized option. It acknowledges an individual’s failure to clear taxes within the stipulated time due to financial constraints. To qualify for DATC, individuals must demonstrate their inability to pay the total tax amount, considering income, expenses, and overall financial condition. Unpack the intricacies of DATC to present a compelling case to the IRS.
Effective Tax Administration (EAT)
When an individual can’t afford to pay taxes without facing severe financial hardship, the Effective Tax Administration (EAT) offer comes into play. The IRS considers the taxpayer’s paying capacity and explores alternative ways to clear the tax amount. Understand the dynamics of EAT, where the focus shifts to the taxpayer’s financial well-being. Navigate this offer type precisely to showcase the genuine challenges hindering tax payment.
Payment Options for the Offer in Compromise
An IRS offer and compromise has two main different types of payment options that need to be followed when opting for an OIC offer, and the below pointers talk about them:
Lump sum cash
Taxpayers can clear off their tax debts in a single go simply by opting for the lump sum cash option. But it does not mean that the individual can pay off right away. At the time of application submission, they must pay around 20 percent of the total amount. If the IRS accepts the offer, the individual can continue the rest of the payments in fewer payments.
Installment payment
This process includes the taxpayer’s need to pay off the initial amount related to tax issues when applying. Then, they need to keep on sending the installment payment every month, even when their application is under review by the IRS. If accepted by the IRS, the taxpayer is responsible for clearing off the amount every month until fully paid.
Can You Pay in Full?
In most cases, the IRS tends to decline an offer when the taxpayer can fully settle their tax debt through an installment agreement or utilizing equity in assets. It’s essential to note that adjustments or exclusions evaluated as part of the offer investigation—such as allowing a $1,000 consideration for a bank balance or a $3,450 deduction against the value of a car—are specifically applicable to individuals. These adjustments come into play only after a thorough assessment establishes the inability of the individual to fulfill the entirety of their tax debt.
The Entire Process of IRS Offer in Compromise
The entire OIC process by the IRS is quite hefty and lengthy for anybody to traverse during tax debt. The below pointers talk about the IRS as a whole OIC process in detail:
Initiation
The process of IRS OIC is initiated by the taxpayer applying. In the application, everything is written in detail regarding the financial condition, personal and financial assets, expenses, supporting documents, and much more, such proof and evidence necessary to determine certain limits.
All these are considered to determine the reasonable collection potential (RCP), and this RCP plays a vital role in the IRS’s determination to know the paying capacity of the taxpayer, which would result in tax repayment.
Issues
There can be specific issues or problems caused by the taxpayer in the application submission process. Certain things must be considered, such as providing accurate information or submitting an incomplete application. Also, it must be taken care of to meet the deadlines within the stipulated time, and one can avail of professional assistance in such cases.
Proper negotiation
Negotiating with the IRS can be carried forward once the IRS approves the application. One can analyze and put forward their paying abilities, and then the IRS can further finely analyze their paying skills. The taxpayer’s representatives can negotiate with the IRS to reduce the OIC amount. Negotiation can help the taxpayer.
Appealing
After the negotiation process, if the IRS comes down to the final resolution on the OIC amount, then the appealing process can take place, which means that the taxpayer can appeal to the IRS if they feel that they cannot pay the amount or that the amount of the tax repayment is calculated wrong.
Acceptance
Suppose the IRS and the taxpayer agree with all the terms and conditions mentioned in the OIC agreement and the reduced amount that must be paid. In that case, the acceptance procedure of both parties takes place, which is a legal procedure to carry forward the things.
Default cases
Remember that the taxpayers already gone for the OIC procedure must always clear their amount when they are supposed to pay and always maintain their deadlines.
If anyone fails to do so, the IRS will take stringent actions against the taxpayer found guilty and will go for legal cases which will default the entire OIC agreement, demanding the fact that the taxpayer now needs to pay the total amount of the tax liability and also be subjected to penalties and heavier late payment charges.
Tips to avoid OIC agreement
Since the IRS offer and compromise are very complicated, it must be kept in mind that the best decision is always to avoid such situations. The below pointers talk about the same:
Seek professional help when needed or when anyone needs more understanding of the taxation system. One can avail of professional assistance, which would be of great help as these experts know all about the laws and regulations of the OIC process and will help keep updated about the latest changes in taxation policies.
Pay the taxes on time and plan before the taxation period before clearing the tax amount. One should always go for periodic tax planning as it helps in knowing the exact amount and what needs to be done regarding the time of tax payment.
Keeping or maintaining records is another, by far the most critical point that everybody must consider. These records come in handy in proving cases against the IRS, if any, and can help the taxpayers have good mental peace knowing they are not subjected to tax debt.
Application Fee
To submit the paperwork for an Offer in Compromise, a $205 application fee is typically required.
However, if you qualify as an individual under the Low-Income Certification guidelines, you are exempt from sending any payment with your offer. The classification of an individual applies to those seeking a compromise for a liability for which they bear personal responsibility, encompassing any liability incurred as a sole proprietor.
Final Overview
The OIC is a complicated yet life-saving process for people who are facing issues regarding back taxes. OIC must be considered one of the best options for tax payment, and one must try to clear the taxes on time to avoid such hassle.
Are you looking for a way to resolve your tax debt once and for all? An OIC can be an excellent option for taxpayers facing financial difficulties who cannot afford to pay their total tax debt. However, getting an OIC approved takes work. You must meet specific criteria, provide extensive documentation, and follow strict rules. That’s why you need the assistance of a reputable tax relief company like Tax Hardship Center. We can help you determine eligibility for an OIC, prepare and submit your application, and negotiate with the IRS on your behalf. Don’t wait any longer. Call us now for a free evaluation and learn how we can help you with an OIC.
