Settling with the IRS: The Offer in Compromise

If you are in a situation where you owe IRS back taxes, it is important that you deal with it right away. For many people, the amount owed is not something that they can come up with in one lump payment. When this is the case, it may be possible to settle with the IRS by making an offer in compromise (OIC). This is an option where you offer to settle the debt for a payment that is less than the total amount owed. If you can get an offer in compromise approved, it can help to resolve your debt much more quickly. The first step in this process is going to be learning about the offer in compromise and how you can qualify.

What Happens with an Offer in Compromise?

When pursuing an offer in compromise with the IRS, the first official step is going to be to file the request with the IRS. This will let them know that you are making an offer, how much you are offering, and provide other details related to your situation. Once this is received by the IRS, there will be a number of steps that need to be performed.

  • Comprehensive Investigation – The IRS will look closely at your finances to determine if you have the ability to pay more than your offer. This will involve you filling out Form 433A or 433B.
  • Provide Your Information – You will be required to provide the IRS with details about your employer, banking information, and what assets you own (including retirement accounts).
  • Stop the Collection Clock – The IRS has 10 years to collect back taxes from you. When you apply for an offer in compromise, that “collection clock” is stopped until the OIC is either approved or denied.

What Happens If You Are Approved

According to the most recent numbers, approximately 60% of people who apply for an offer in compromise are denied. Those who are approved, however, will have a number of important obligations that they need to be aware of. These include:

  • Repayment of Debt – Whether approved for a lump sum or a monthly payment, it is essential that everything is paid on time or the deal is off.
  • Probation – Those who are approved are put on a five year probationary period. During this time you must remain in full compliance with all filing and payment of taxes or the offer in compromise will default.
  • Restrictions on Finances – The IRS considers itself your primary financial obligation. New credit card payments, car payments, and even mortgage payments are not seen as a reason to miss a payment to the IRS.

Is an Offer in Compromise Right for You?

There are commercials on TV and radio that suggest an offer in compromise is an easy way to escape IRS debt. While it is a great option in some situations, it depends on each individual taxpayer’s facts and circumstances, and may or may not work for you. Speaking with a tax attorney will help you get honest advice to understand your options, your chances of approval, and what the process will be like. Please contact us to schedule a consultation today.

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Weisberg Kainen Mark, PL

As experienced trial lawyers with a passion for justice, our firm provides clients with compelling advocacy, attorney availability, and creative solutions to your tax or criminal law matters.

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