What Is an Offer In Compromise? A Closer Look at Tax Debt Resolution Options Available to Taxpayers

The IRS’s Offer in Compromise program is one of the best options taxpayers have available to them for settling a large outstanding federal tax liability. You may have heard about Offers in Compromise on TV during the ads for ex-IRS agents who can help you “get out of debt quick.” But an Offer in Compromise is a lot more complex than just giving your personal information to an operator over the phone to fix your tax problems. Rather, it is an option that can help you alleviate some of the stress of facing an insurmountable tax debt.

How an Offer in Compromise, or OIC, Works

An OIC is a deal between you and the IRS to settle your debt for less than the full amount of what is owed, if there is no way that you could realistically pay back the full amount either through a lump sum or installment plan.

There are several different types of offer in compromise available to taxpayers, and the one that’s best for you will vary depending on your exact situation. A certified tax lawyer can help you determine your eligibility and establish which compromise is right for you.

3 Types of Offer In Compromise:

  • Doubt as to Collectability: This type of OIC is used when there is doubt that the full amount could be paid off within the amount of time the IRS has left to collect your debt. Most often, this occurs when the amount of monthly expenses exceeds a person's monthly income. Also, the person does not own appreciable equity in any property and is unable to pay the debt, even if they were to pay in monthly installments.

  • Doubt as to Liability: The IRS may be accepted this type of OIC if the taxpayer has new evidence that challenges the amount of debt owed, or the examiner made a mistake in interpreting the law when determining the amount owed. It may also be accepted if it is determined that the examiner did not correctly consider the taxpayer’s evidence.

  • Effective Tax Administration: In this case, there is no doubt about the amount of tax owed, but a certain exceptional circumstance is present that would cause economic hardship to the taxpayer. For example, a taxpayer might be able to pay the debt by selling his or her home, but a terminal illness causes the taxpayer to need the profits from the home sale to cover living and medical expenses more than paying the debt.

Application fees and investigations are required for all of these options, and you can be certain that the IRS will look into your complete financial history and current situation. You will be required to submit proof of your monthly income and expenses, and your master tax file will need to be reviewed. Learn more about the OIC process here: 7 Things You May Not Know About an Offer in Compromise.

Once your application has been submitted, there’s still plenty to do. You must remain current with your tax filings and payments while the IRS is considering your request, but there are also several other things to do after submitting your OIC.

An Experienced Tax Attorney Can Help You Apply for an OIC

Providing this information can be a daunting task—one that, if done incorrectly, could cause an your application to be denied. The best thing to do for you, your family, and your business is to contact an experienced tax lawyer to help you. Not only will a lawyer sit down with you to help determine the best option, but he or she also can help you provide the right information to the IRS, heeding its strict guidelines.

Tax debt lawyer Travis Watkins can help you do this. He will provide you with a free copy of his book, The Ultimate Survival Guide for IRS Problems, when you call 800.721.7054. You will have the opportunity to sit down with him in a free consultation to figure out how to get your life back.

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