Individuals or businesses facing tax debt are stressful and can disturb mental and physical health. Tax debts act as financial burdens on the person who gets levied owing them to look for paths to get rid of the debt. Therefore, the Internal Revenue System (IRS) provides ways for people facing tax liabilities.
One such form of relief is the Offer In Compromise (OIC). This program by the IRS helps people pay off their tax debt but a lesser amount than what is owed. This program is helpful as it can help people regain their financial stability. In this article, we shall talk about the Offer In Compromise (OIC) program and its various benefits.
What is an Offer In Compromise?
An Offer in Compromise payment lets you pay less than what you owe in taxes to settle your debt. It may be a valid choice if you can’t afford to pay all of your taxes or if paying them causes you financial difficulties. The IRS looks at different things about you, like how much money you can afford to pay, how much money you make, how much money you spend, and how many valuable assets you have.
The IRS usually agrees to an offer in compromise when the amount you propose to pay is the most they can expect to collect in a reasonable amount of time. But it is better to look into different ways to pay before you try to make a compromise. Only some people can use the Offer in Compromise program.
How does OIC work?
- An offer in compromise works when you and the IRS recognize that there’s no attainable way to pay off all your tax debt. This means you simply need more wages to pay off your obligation and more profitable resources that the IRS could seize.
- You offer to pay the IRS the most extreme sum you can manage, even though the sum may fall far short of the actual tax debt.
- If the IRS acknowledges that the sum you offer to pay is the foremost it may reasonably expect to gather from you, it’ll agree to compromise and lower your tax obligation to match the sum you’ll pay.
- Once you have paid the agreed-upon sum, the tax obligation is considered “paid in full.”
Process of OIC application
The entire process of OIC application is based on a person’s eligibility and the ability of that person to repay the tax debt. Below is a detailed description of the entire process:
- Before submitting an Offer in Compromise, you must meet particular eligibility criteria. The IRS assesses your capacity to pay based on your salary, expenses, and asset value. You must be current with all recording and installment requirements and not be involved in an open bankruptcy proceeding.
- To decide your eligibility and installment sum, complete certain forms (Form 433-A for individuals, Form 433-B for businesses, and Form 656 – for Offer in Compromise). This form traces your financial circumstances, including income, expenses, and asset values.
- The IRS shall collect all types of data regarding a person’s financial stability. These details are collected to calculate the Reasonable Collection Potential (RCP). This calculation concludes the maximum amount the IRS can expect from the person within a stipulated period. It is done by calculating a person’s expenses, asset values, and salaries. Your Offer in Compromise will be the difference between your total tax obligation and your RCP.
- After the IRS acknowledges your Offer of Compromise, you can choose payment alternatives. You’ll select to pay the settlement sum as a lump sum (a one-time payment) or through periodic installment payments.
- If your Offer in Compromise payment is acknowledged, you must follow the installment plan you proposed in your application. This includes the number of periodic installments and their amounts. If the offer is rejected, you can appeal within 30 days.
- To preserve your OIC understanding and dodge default, you must fully comply with all tax commitments for at least five years after acknowledging your offer.
The Primary Benefits of OIC
There are several benefits of OIC. Some are stated in the below pointers:
- The foremost noticeable advantage of an Offer in Compromise is that it allows taxpayers to settle their tax obligation for less than the total amount they owe. This reduction can help, especially for those facing overpowering tax liabilities.
- Owing a substantial sum in back taxes can cause gigantic financial stress and anxiety. OIC installments give a means to reduce this burden, decreasing the financial strain and uncertainty related to tax obligations.
- For some people, bankruptcy could be the only way to get out of the tax debt. OIC installments offer an alternative that can help avoid bankruptcy’s long-lasting, adverse effect on one’s credit history and financial future.
- The IRS can take control of your assets, such as personal properties, bank accounts, and so on, to fulfill the tax debt. An OIC can prevent such seizures and thus save your assets from getting frozen and maintain financial stability.
- Taxpayers can pay either in a lump sum manner or through periodic installments. Thus, this feature of Offer in Compromise payment refers to flexibility, which is very handy for people in serious tax debt.
- Once you submit an Offer in Compromise, the IRS regularly suspends collection activities, including levies and liens. This stop-in authorization gives you breathing room to arrange and settle your obligation.
Final Overview
An Offer in Compromise (OIC) can significantly help people going through serious tax debts. They can avail of this program and get saved from huge penalties and punishments.
Although all cannot avail of this program, it is necessary to consult with a tax lawyer to increase the chances of availing of this program and to become aware of future tax liabilities beforehand. Availability for OIC can lead to a fresh start and pave the way for financial stability.
