If so, the IRS Tax Compromise Program, also known as Offer in Compromise, might be the ideal solution for you.The program allows taxpayers to settle their tax debt for less than the full amount owed. To be eligible for an OIC, you must meet certain requirements, and the IRS must accept your offer. To further explain the requirements of the IRS Program, let’s wait no more and start discussing IRS Compromise Program and everything related to it.
The IRS Compromise Program aims to provide a solution for taxpayers who find it financially challenging or even impossible to pay their tax debts in full.
Under the Offer in Compromise program, taxpayers can settle their tax debts for less than what they owe, offering them a fresh start and relieving the burden of unmanageable tax obligations.
Before applying for the IRS offer in compromise, ensure that professionals at Abraham & Rose review your request. Eligibility for the IRS Compromise Program depends on several factors, including a thorough evaluation of the taxpayer’s financial situation, income, expenses, and assets.
In general, If you or your business have been in debt for over $10,000, you can easily qualify for an offer in compromise.
Moreover; there are other requirements for applying to the IRS Offer in Compromise program. The IRS requires individuals applying for the OIC to have already:
After a taxpayer submits an Offer in Compromise to the Internal Revenue Service, the evaluation process starts. During this period, the IRS evaluates the provided evidence and takes appropriate steps whether to accept the offer or not.
Here are some detailed insights on the steps IRS takes after submitting the offer.
Initial Assessment and Collection Activity:
As the Offer in Compromise has been submitted, IRS starts evaluating the offer. The IRS initiates an initial assessment of the submitted offer during the evaluation.
Non-refundable payments and fees made by the taxpayer are applied toward the tax liability. These payments demonstrate the taxpayer’s good faith in resolving the debt. Simultaneously, the IRS may file a Notice of Federal Tax Lien to secure its claim against the taxpayer’s assets and alert other creditors of the tax debt.
Extension of Legal Assessment and Collection Period:
As part of the offer evaluation process, the legal assessment and collection period for the tax debt is extended. This means that the statute of limitations, which dictates the time the IRS has to collect the tax debt, is temporarily extended during the review period.
If the taxpayer has an existing installment agreement for the back taxes, it is temporarily suspended while the OIC is under review. This suspension allows the IRS to focus on evaluating the offer rather than processing the existing payment plan.
An essential aspect to note is that the IRS is bound by specific timeframes for reviewing the submitted OIC. If the IRS does not decide within two years from the receipt date of the offer, the Offer is automatically accepted.
Choosing the IRS Offer in Compromise program has many benefits. The offer allows you to pay the tax in extended periods instead of paying the whole tax at once.
Here are some benefits listed below:
1. Significant Debt Reduction:
The IRS Offer in Compromise plan presents an exceptional opportunity for taxpayers to reduce their tax debt. This reduction provides much-needed relief to taxpayers facing overwhelming financial burdens, offering a chance to start anew and regain control of their financial situation.
2. Avoiding Financial Hardship and Bankruptcy:
The OIC plan can be a great alternative for individuals facing severe financial hardship. Choosing an IRS OIC offers a way to resolve tax debts without resorting to bankruptcy, preserving the individual’s financial standing and providing a more manageable path to debt resolution.
3. End to IRS Collection Actions:
One of the most significant benefits of an accepted OIC is the cessation of IRS collection actions. Once the OIC is approved and the settlement amount paid, the IRS will halt aggressive collection measures such as bank levies, wage garnishments, and property seizures.
In the IRS Offer in Compromise program, taxpayers have two payment options to choose from when submitting their offer. These payment options allow individuals to propose a decent settlement amount for their tax debt, depending on their financial situation and ability to pay.
The payment options include:
1. Lump Sum Offer:
The first payment option is the Lump Sum Offer. Under this method, taxpayers are required to submit an initial payment equal to 20 percent of the total amount they are offering to settle their tax debt.
This initial payment is made when submitting the offer to the IRS. Following the initial payment, taxpayers can pay the remaining balance in five or fewer payments, spread out over five or fewer months from the date the IRS accepts the offer.
The Lump Sum Offer is advantageous for individuals who have access to a good sum of money and can make a substantial payment upfront. This payment option allows taxpayers to expedite the resolution process and resolve their tax debt situation quicker.
2. Periodic Payment Offer:
The second payment option is the Periodic Payment Offer. With this method, taxpayers make the first payment when submitting the offer, similar to the Lump Sum Offer.
However, the difference lies in the subsequent payments. Under the Periodic Payment Offer, taxpayers have a more extended timeframe to pay the remaining balance. They must make additional payments over 24 months, per the terms specified in their offer.
The Periodic Payment Offer benefits individuals who cannot afford a substantial upfront payment but can make smaller, regular payments over a longer time frame. This payment option allows taxpayers to manage their cash flow more effectively and budget their payments over two years, making it a more viable choice for those with limited financial resources.
It is possible to file an IRS Offer in Compromise on your own. But!
Are you sure that the IRS will accept your offer? Do you have enough tax-based knowledge to convince IRS for the OIC?
These are some of the reasons why we always recommend taxpayers get professional service from Abraham & Rose. Not only do we help with the documentation, but we also arrange meetings with IRS agents on your behalf.
Contact our attorneys for a free initial consultation. Unlike other tax advisors, our firm prides itself on its ability to furnish direct contact between attorney and client throughout the entire process.
The IRS typically takes several months to review an Offer in Compromise. The exact time may vary depending on the complexity of the taxpayer’s financial situation and the workload of the IRS.
Yes, taxpayers can appeal if their Offer in Compromise is rejected. The IRS will provide a detailed explanation for the rejection, allowing the taxpayer to address any issues or provide additional information supporting their offer.
To apply for an Offer in Compromise, taxpayers must submit Form 656, Offer in Compromise, along with the required financial documentation and supporting evidence.
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