Tax Relief through an Offer in Compromise

Tax debt can be a relentless burden. It often grows silently in the background until it demands urgent attention. For individuals grappling with the weight of insurmountable tax bills, the Internal Revenue Service (IRS) offers a lifeline: the Offer in Compromise (OIC) program, specifically designed for those with ‘Doubt as to Collectibility. ‘ This isn’t just a temporary solution, but a potential permanent resolution, enabling eligible taxpayers to settle their tax liabilities for less than the full amount owed—a crucial consideration for those facing financial hardship due to tax issues.

Eligibility and Submission

The first step in seeking relief through an OIC is determining eligibility. The IRS requires that taxpayers provide comprehensive financial statements and supporting documentation to establish that their income and assets will not be able to cover the full amount of the tax debt within the collection period. This financial snapshot includes all forms of income, expenses, asset equity, and potential future earnings.

Once a taxpayer establishes eligibility, the next step involves the actual submission of the OIC application. This process must be completed using IRS Form 656, Offer in Compromise, IRS Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, together with a non-refundable application fee and an initial payment. The amount of the Offer is primarily based on the taxpayer’s ability to pay, looking towards current assets, and  monthly income and allowable expenses, and may vary depending on the taxpayer’s chosen payment option. Payment can be made as a lump sum or through installment payments. This decision impacts the initial payment amount and the terms of the offer submitted to the IRS.

Financial Analysis and Approval

After the IRS receives the OIC application, they conduct a thorough financial analysis to calculate the Reasonable Collection Potential (RCP). The RCP represents the IRS’s estimation of the maximum amount that could realistically be collected from a taxpayer in a reasonable period. Again, this is based on the information provided to the IRS in Form 433-A OIC which includes the taxpayer’s current assets, monthly income and allowable expenses. Based on this calculation, taxpayers propose an amount to settle their tax debts, which should be equal to or greater than the RCP.

The approval process for an OIC is a meticulous one, often taking up to two years. During this time, the IRS carefully reviews the proposed terms and the submitted financial evidence. If the IRS does not respond within two years, the offer is automatically accepted. However, it’s important to note that approval is not guaranteed. The IRS may reject an offer if it determines that the tax debt could feasibly be paid in full either immediately or through a structured payment agreement. Taxpayers need to understand that non-compliance can lead to the reinstatement of the full original tax liability, negating the benefits of the compromise initially granted.

Taxpayers whose OICs are approved must adhere strictly to all tax laws and filing requirements for five years following acceptance of their OIC. Failure to maintain compliance can result in the reinstatement of the full original tax liability, nullifying the benefits of the compromise initially granted.

Getting the Help You Need When You Need it Most

If you are grappling with substantial tax liabilities and believe you might qualify for an Offer in Compromise based on Doubt as to Collectibility, professional guidance can be your anchor. Weisberg Kainen Mark is ready to help evaluate your situation and assist with your application to ensure it is handled properly. To discuss your specific tax situation and explore your options, call (305) 374-5544 to schedule a consultation today. You have rights and options to resolve tax issues effectively–don’t let them pass you by.

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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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