Understanding Offers in Compromise

Tips on settling with the IRS your tax bill with the help of an offer in compromise

It is possible to make your tax line up spick and span by getting a lot of discount especially if you are eligible for an offer in compromise. Also called as the OIC, the IRS can accept only about a percentage of the total sum payable on the tax payer’s bill and call it quits with the tax payer.

There is really no lawful right for you to have your tax bill that is still vald, readily reduced by IRS. This decision is the discretion of the government. There are instances that the IRS gives OIC a consideration. However, there are only few OIC submitted that the IRS entertains. However, you are entitled to take a casted off OIC to the Appeals Office of the IRS.

The Process of OIC

Submitting to the IRS an OIC is an official procedure and you start filing one by completing the IRS Form 656 called the Offer in Compromise.

The charge for filing and applying an OIC is $150 which you need to attach together with the completed Form 656. You can be exempted to pay for the charge if you earn an income that is underneath the poverty threshold. However, you need to claim a poverty guideline exception. You also need to put forward from the booklet of the Form 656, an Application Fee Worksheet.

Aside from the Form 656, it is important that you submit the Form 433-A which is the Collection Information Statement. If you are already married and you reside in a community property estate, the IRS usually requests the data of your partner even though you are the only one who owes the IRS. When filing the 433-A, it is important that you fill the form correctly the fact that the IRS examines the information that you make in the form especially when applying for OIC.

The Disadvantages of Submitting OIC

Filling up of the documents is just the start when filing for OIC. Once you put forward the documents, the IRS will demand the financial documents like vehicle registrations, pay stubs, bank records and other. Getting these documents ready can be very exhausting and tax payers usually end up submitting a lot of papers to the IRS to support their request for OIC.

Another disadvantage to filing for OIC is that if it is rejected, then all information that you have submitted might be used against you. Thus, it is important that when you consider for OIC, you need to make sure that your request will be granted.

Moreover, it is important to remember that the interest keeps on piling up during the OIC negotiation process and this means that you owe the federal government more money than ever.

Requirements For OIC Consideration

A lot of people want to have their tax bill reduced thus qualifying for OIC can be a sweet deal with a lot of people. If you want to qualify for this process, here are some of the conditions that you have to meet.

There is a doubt that the IRS can really collect tax from you and this is termed as the “doubt as to collectability.”

There is doubt if you really owe tax and this is termed by the IRS as “doubts to liability”. This is an unusual condition hardly ever met by tax payers.

Payment of your tax will result to economic hardships due to uncontrollable circumstances.

How Much Should You bargain with the IRS?

The sum of the OIC needs to be the same with the realizable value of your assets and the sum of cash that the IRS can take from your earnings. For instance, if your assets equate to $17,200, and the sum of your future earnings that is available to the IRS is $14,800, then the minimum offer that you will get is just $32,000. For more information regarding on how to calculate the realizable value of your asset, refer to the Stand Up to the IRS written by attorney Frederick W. Daily.

If the IRS will accept your offer and that you decide to make the payment over two years, then the IRS will record a Notice of Federal Tax Lien which shows your debt. The lien will be reflected in your record until the last amount has been paid or if the statute of limitation for collection is over.

Special Circumstances

What if you find out that the amount for OIC is beyond your capacity to pay? Just the same, consider making the offer and assume that the IRS won’t be grabbing any assets that you did not reveal. In most cases, the IRS personnel offer leeway to accept less money that is usually required under strict rules.

The IRS gives consideration to people who have physical and psychological illnesses. In fact, the IRS usually gives offers to people who are over 60 years old and will consider giving support to HIV or drug and alcohol dependent people.

For the IRS to gain notice of your situation, you need to attach a letter to your filled Form 433-A. The letter does not need to be fancy but it needs to tell the story on why are making an OIC. Moreover, it will help if you attach statements from your doctor about any particular condition that you are suffering. Explain in your letter how your condition can affect on how you earn a living.
Keep trying even if your offer is rejected!

The IRS gives a written explanation on why your offer was rejected. There are several reasons why the IRS rejects an OIC and these are:

– The offer made was insufficient and low.
– Your character is notorious or if you have been convicted of a serious crime.
– If the offer that you made is low, the IRS letter usually states a particular amount that is acceptable to them. You are also entitled to a copy of the report which lists the factors causing the rejection. You can ask the IRS for a copy and if the agency will not give you one, you can make a request under the Freedom of Information Act.

After you have found out why the offer was rejected, you can then resubmit your OIC. The revenue office can help you come up with a way that will make your offer acceptable.

You also do not need to submit a new form if you have already submitted within a month especially if your financial circumstances have not changed and if the new offer that you will make is not different from the old one. Instead of resubmitting an old one, write a letter instead. State that you want to change your OIC and offer an increased amount of cash.

To submit a different offer, it is important that you complete another Form 656.

How To Appeal A Rejected OIC?

You can appeal formally a rejected OIC or you can persuade IRS to change its mind. On the other hand, if you forward your appeal to the IRS’ Appeals Office, then you engage yourself in further negotiation.

For you to start an appeal, you need to submit a letter within 30 days after the date of the first rejection. Your letter should be as follows:

– I wish to appeal from the rejection of an OIC that was submitted on the 10th of June 2006 and rejected on the 7th of January the following year. I request to have a conference.

– Your appeal for an OIC that was rejected won’t be seriously considered if you haven’t met the following conditions.

– You were able to furnish all data that were requested by the IRS for your previous offering.

– You were able to file all tax returns in the past

– You are on time paying your tax bill for this year. Self employed individuals do not need to make quarterly estimated tax payments but employed people need their employers to pay for the tax promptly.

Appealing is within the IRS’ discretion and you cannot take the IRS to the court for simply rejecting your offer.

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