The amount that the IRS is willing to settle for with an Offer in Compromise (OIC) depends on a variety of factors, including your income and ability to pay, reasonable collection potential, and other applicable statutory criteria. The key component of an OIC is demonstrating that you cannot pay the full amount due.
Your proposed offer must also be equal to or greater than what the IRS believes it can collect from you. You will have to provide proof of your financial situation and also make a non-refundable payment with your offer. Generally, an OIC offer is accepted if it is equal to or more than the reasonable collection potential (RCP).
The RCP consists of the present value of the taxpayer’s assets, income, and ability to pay. If the IRS concludes that you wouldn’t be able to fork over more money, it might accept an offer for less money than the RCP. It is important to understand that any offer accepted by the IRS does not guarantee full payment of your tax liability. Rather, it is an agreement that the IRS will accept a lesser amount than is owed as full payment for your tax liability.
What Is An Offer In Compromise (OIC)?
An Offer in Compromise (OIC) is a program through the IRS that allows taxpayers to offer to pay a lesser amount than what they owe on their taxes, thereby settling their tax debt for less than the full amount. The OIC is often referred to as “pennies on the dollar” and can be used to help taxpayers reduce their overall tax liability. Before you submit an offer to the IRS, it is important to understand the criteria and qualifications for eligibility and how the OIC process works.
What Are The Benefits Of An OIC?
The key advantage to an Offer in Compromise is that it allows taxpayers to negotiate their taxes owed down to a lower sum. If you cannot pay your taxes in full, this can be a great relief. Additionally, an OIC can help you avoid costly collection fees and other penalties associated with delinquent taxes. Finally, an OIC may help you avoid bankruptcy or wage garnishments.
Who Can Apply For An Offer In Compromise?
Anyone who owes taxes to the IRS can apply for an Offer in Compromise (OIC). The IRS has strict eligibility criteria that you must meet before they will consider your offer. The key eligibility requirement is that you are unable to pay the full amount due in a reasonable amount of time.
How Can You Qualify For OIC Eligibility?
If you want to qualify for an Offer in Compromise (OIC), you will need to provide proof of your financial situation and show that the full amount due cannot be paid in a reasonable amount of time. The IRS typically looks at income, assets, expenses, and other relevant factors when evaluating OIC eligibility.
In order to be eligible for an offer in compromise, you must:
- Have evidence that you cannot pay your entire tax amount owed.
- Show all required tax returns have been filed.
- Not currently undergoing bankruptcy proceedings.
- Be an employer who has made tax deposits for the current and two previous quarters.
What Happens After An Offer In Compromise Is Accepted?
Once an Offer in Compromise (OIC) is accepted by the IRS, you are required to fulfill all terms of the agreement. This includes making timely payments and submitting all requested documents. The IRS may also require that you provide periodic updates on your financial situation while the offer is being processed.
Settle Your Payments
You can either pay your OIC in one lump sum or make periodic payments.
This option involves making up to 5 payments over the course of 5 months.
This plan can extend for a duration of 2 years. Making your payments on time and in full is important.
If you don’t make a payment, your OIC will go into default mode.
File Your Taxes
Your obligation is not yet done even if the offer in compromise is already paid. If you want to use the OIC program, you have to agree to stay in tax compliance for the next five years.
This means that you will have to file every single one of your returns on time and make all appropriate tax payments for the next five years. If you don’t submit a tax return or make an estimated tax payment, your offer could be void, even if you’ve already made all the required OIC payments.
If you are expecting a tax refund during the year that your OIC is accepted, be aware that it may be offset.
Get Out Of Tax Debt
Once your OIC is accepted, failing to pay tax debt for prior years not included in your initial offer can also affect it. An unfiled tax return from several years ago can cause this. An OIC is more likely to be rejected if the taxpayer has an unfiled tax return, but if the IRS agent handling the case doesn’t catch it, there’s a chance your offer could still be accepted.
In order to avoid complications, file all the required tax returns and make sure that your previous debt is accounted for in your offer. Nobody wants their tax debt to come back after getting an OIC accepted.
How Much Does the IRS Settle on Average?
You may qualify for an Offer in Compromise (OIC) from the IRS if you owe them back taxes. The IRS offers a compromise to taxpayers who cannot pay their full tax liability; this agreement allows them to pay a reduced amount.
The OIC program is only given to those who made estimated tax payments for the current year and have filed all required tax paperwork. In order to use this service, you must agree to comply with all filing and payment requirements in the future.
The maximum amount you can extend is based on your capacity to pay and the equity you hold in assets. The IRS will look at your income, expenses, and asset equity to determine the maximum acceptable offer amount.
The average offer is valid for two years from the day it’s accepted by the IRS. If your circumstances change and you can no longer afford the payments, the offer could be rescinded, and your account will go back to being active.
The amount the IRS settles for with an Offer in Compromise depends on a variety of factors including your income and assets. You must meet certain criteria to be eligible for this program and make payments over the course of two years. The average offer accepted is usually much less than what you originally owe, making it a good option if you are facing significant tax debt.
Be sure to file all required tax returns before submitting an OIC and keep up with payment requirements after acceptance. By doing so, you can successfully get out of tax debt without having to pay the full amount owed.
With the help of the Ideal Tax team, you can create a personalized plan to fit your needs and ensure your offer is accepted. Get in touch with us today for expert advice and assistance