18 Apr Offer in Compromise: Qualifications & Eligibility Requirements
What is an Offer in Compromise (OIC)?
It is an agreement between the IRS and the taxpayer that settles the latter’s tax liability for less than the full amount owed.
Taxpayers who can settle their tax due through an installment agreement or other options will not qualify for an Offer in Compromise.
There are three main conditions where the IRS allow an individual to undergo an Offer in Compromise or OIC. You need to fall into one of these categories or eligibility considerations before the IRS allows you to do so.
Doubt as to Collectibility
The IRS foresees that they cannot collect the tax debts from you in the near future. Why? Your assets and income are less than the amount owed.
If you answer “no” to these questions, this will increase your chance of being accepted into an OIC.
- Would the IRS be able to collect from you through forced collection or through an offer?
- Will your financial condition improve or will get better over time?
- Would other people think the offer was inappropriate?
Remember that the IRS is more interested in getting the best deal possible. When you make an offer with the IRS, your offer must be equal or more than your Reasonable Collection Potential (RCP). The IRS calculates your RCP through Form 433-A OIC. Your RCP is equivalent to your monthly disposable income multiply by the payment period and equity in assets.
Doubt as to Liability
This happens when IRS thinks that your tax bill is incorrect when an assessor makes a mistake or an examiner refuses to accept your documents. You may also provide new documents, showing that you owe less tax.
Effective Tax Administration
If the IRS believes that paying your tax debts means struggling with a financial hardship, then you may be considered for an Offer in Compromise. You may also fall into this category of the IRS feels that it paying a tax debt would be very unfair.
Other OIC Eligibility Requirements
If your case falls into one of those categories, you may qualify for an Offer in Compromise.
Here are the other requirements:
- You are not going through bankruptcy
- File all federal tax returns
- A business that wants to file for an OIC must file for required federal deposits
- If a sole proprietor or partner is the one with tax debts, he or she must comply with the estimated tax payments
- Pay the OIC application fee
- Submit all the required documents
The Fresh Start Initiative is a streamlined OIC program. The IRS will consider state taxes and student loans in calculating monthly living expenses. The amendments to the OIC program allow it to be available to a larger group of taxpayers.
Filing for an Offer in Compromise can be stressful. It’s best to ask help from a tax professional or expert to navigate you to the right process and increase your chances for an OIC. You may also download the Form 656 Booklet for Offer in Compromise information.