What is an Offer in Compromise?
An Offer in Compromise (OIC) is a program offered that permits the government to accept less than what is owed on a tax liability. Typically, the Internal Revenue Service will either approve or reject your OIC based on two main factors:
- Income of the taxpayer
- Assets of the taxpayer
If the IRS determines that your income or assets is not sufficient to cover the tax liability, the OIC has a good chance of acceptance. However, when a taxpayer possesses assets that would sufficiently cover the tax liability, the IRS will reject the OIC. Therefore, it is very important to do a financial analysis before you make the decision to submit an offer.
What happens when an Offer in Compromise is rejected?
A bad offer will only further extend the time period that the IRS has to collect the tax debt. Additionally, interest and penalties will continue to accrue. Your case will be sent back to the Collection Division, which will require the establishment of a payment plan.
What You Should Know About an IRS Compromise
When you submit an Offer in Compromise, the IRS will not engage in enforced collection action. Most offers are typically reviewed within one year from submission. If the IRS does not review or decide on your offer within two years, the offer is automatically accepted.
The IRS is most likely to accept an offer if the taxpayer shows he/she has limited collection potential. The offer may be attractive to the IRS who is concerned with the cost of managing a case that is not going to result in much collection.
Many firms promote the OIC program to unqualified taxpayers. It is important to realize that both the approval process and calculation of the specific offer amount can be complicated and time consuming. In addition, if the OIC does not have grounds for acceptance, the taxpayer will incur additional interest and penalties. Even worse, the time period for the IRS to collect the debt will be extended, and the option to discharge the taxes in bankruptcy can be delayed.
Our firm is constantly contacted by new clients who were incorrectly advised by unqualified professionals about an OIC. Most commonly, these “firms” charged exorbitant fees to taxpayers who were otherwise unqualified OIC applicants. Though submitting an offer in compromise sounds tempting and can be a great option, it is very important to exercise caution before you decide to go forward with the process. For more information about an OIC, please call 1.800.777.3800 or contact TaxFirm.com.