An offer in compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally accepted if the IRS believes the tax liability can't be paid in full as a lump sum or a through payment agreement.
The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s “reasonable collection potential.” OICs are subject to acceptance on legal requirements. To determine the taxpayer’s ability to pay, the IRS determines a value of the taxpayer’s assets and adds the value of his ability to pay in the future.
Are You Eligible?
Before your offer can be considered, you must:
file all tax returns you are legally required to file
have received a bill for at least one tax debt included on your offer
make all required estimated tax payments for the current year
make all required federal tax deposits for the current quarter if you are a business owner with employees
Your offer may be returned if you have not filed all tax returns you are legally required to file, or are not making all required estimated taxpayments and/or federal tax deposits.
The goal of the offer in compromise is to collect what is reasonably collectible at the earliest possible time and at the least cost to the government. There are three bases under which an offer in compromise may be accepted:
Doubt as to Collectibility: The IRS only accepts of offer in compromise if the offer is equal to or greater than the amount that could be collected from you, also called the reasonable collection potential
Doubt as to Liability:The IRS may accept an offer in compromise if there is doubt regarding the liability of your tax debt. If the IRS feels your tax liability is inaccurate, they may consider an offer in compromise.
Effective Tax Administration: If you have an extenuating circumstance that prevents you from paying your tax debts. When there is no proof the liability is inaccurate and your offer is less than the (RCP), the IRS may still accept an offer
Tax Payment Options
Lump Sum Cash: This option requires 20% of the total offer amount to be paid with the offer and the remaining balance paid in 5 or fewer payments within 5 or fewer months of the date your offer is accepted.
Periodic Payment: This option requires the first payment to be paid with the offer and the remaining balance paid within 6 to 24 months