Offer in Compromise (OIC).
Should you consider an Offer in Compromise?
An Offer in Compromise allows you to settle your tax debt for less than the full amount you owe. It may be an option if you can’t pay your full tax liability. Also, the OIC may be an option if paying your full tax liability creates a financial hardship for you.
Due to the complexity of the OIC, we very strongly recommend you contact us prior to attempting an OIC.
OIC Acceptance Rate.
The IRS accepts less than half of the Offers in Compromise it receives. Before the IRS can consider an offer, you must be current with all filing requirements. Your tax returns must be filed for the prior six years.
Generally, if it appears to the IRS that you can pay your balance in full within 6 years, then the IRS may reject your OIC. Notably, the IRS uses a complicated methodology to analyze your financial situation.
Mistakes.
In our experience, IRS agents make errors when conducting the financial analysis as well. In our view, many taxpayers incorrectly calculate their monthly income. Furthermore, we believe that many taxpayers incorrectly calculate their monthly expenses.
For example, if you are paid bi-weekly, you should multiply your check amount by 2.17 to determine your monthly income. Additionally, if you are calculating your monthly expenses, you may be required to apportion your expenses if you are married, even if your spouse is not liable. You do this by computing a pro rata percentage based upon your contribution to total household income. Then, you take your pro rata expense deductions based upon the allowable amount for the entire household.
The IRS has an Offer in Compromise Pre-Qualifier tool at IRS.gov. In our view, and based upon the mistakes we’ve seen, the offer in compromise tool is very difficult to use.
Appeal.
If your OIC is not accepted, then you have the right to appeal in certain cases.
If you need any help with an OIC please contact us.