Offer in Compromise
An offer in compromise (OIC) allows you to settle your tax debt for less than the full amount you owe.
Not all taxpayers qualify for an OIC. If you qualify, it is usually the best option as you are paying less than the total amount you owe.
To qualify, individuals must be current with all filing and payment requirements. That means you cannot have any delinquent tax returns that have not been filed. In addition, if you are self employed and required to make estimated tax payments for the current year, the IRS will typically require you to make your estimated tax payments prior to considering an OIC. You are not eligible if you are in an open bankruptcy proceeding.
The IRS considers each case individually and typically looks at your ability to pay your liabilities in full; current and future income; current expenses; as well as any equity in assets you may have.
If you can’t pay your tax liabilities in full immediately or over time, or doing so creates a financial hardship, the IRS may consider an OIC.
The Offer in Compromise program is not for everyone. Individual wage earners, self employed, out of business entities (sole proprietorships; partnerships; corporations and limited liability companies) may qualify based upon specific criteria.
The IRS will consider an offer in compromise when the amount offered represents the most the IRS can expect to collect within a reasonable period of time. The IRS will consider and encourages taxpayers to consider all other payment options before submitting an offer in compromise.
The IRS will require detailed financial information along with the required OIC forms. You should consider enlisting the services of a tax professional if you wish to submit an offer in compromise. You should select a qualified, credentialed tax professional.
Here are some points to keep in mind:
- Check the tax professional’s qualifications. Ask your tax professional if they have a valid and current preparer tax identification number (PTIN). Anyone who charges you to help prepare your Offer in Compromise must have a PTIN. Also, not all tax professionals can represent you if the IRS has questions about your submission. Regulations governing practice before the Internal Revenue Service generally limit who can represent you to attorneys, CPAs and enrolled agents. If your tax professional is not an attorney, CPA, or enrolled agent, he or she cannot fully represent you in your collection matter before the IRS.
- Check on the tax professional’s licenses. Ask your tax professional what professional licenses they hold and whether continuing education on IRS collection matters is part of the criteria for maintaining that license.
- Check on the tax professional’s history. You can check on the status of their license and for any disciplinary actions through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Return Preparer Office for all tax professionals.
- Find out about the tax professional’s service fees. Your tax professional cannot charge you a fee based on how much you are able to reduce your tax liability through the offer process. Do not agree to calculate your fee on this basis.
- Make sure the tax professional is accessible. Make sure you will be able to contact the tax professional after the offer has been filed in case questions arise.
- Provide your tax professional with all records needed to prepare your offer. Reputable tax professionals will request to see all your current financial records and a complete list of your assets. They also will ask you questions about your income and expenses to determine an appropriate offer amount.
- Never sign a blank tax form. Avoid tax professionals that ask you to sign any blank tax form.
- Review the entire offer before signing it. Before you sign your offer, review it and ask questions. Make sure you understand all the entries, confirm the accuracy of everything on the forms, and are comfortable with the amount being offered before you sign it.
- The tax professional should sign the OIC form and include his or her PTIN. You are responsible for the accuracy of every item on your offer, but your tax professional also should sign the offer, and include their PTIN. If they refuse to sign the offer, ask them why. Be sure to get a copy of the offer for your files.