Tax payment is a statutory obligation, non-compliance to which can lead to serious legal consequences such as tax liens and criminal prosecution. A lot of taxpayers experience difficulty in paying their taxes due to financial hardship. Considering that, the Internal Revenue Service announced a Fresh Start Program in 2011 offering relaxations to help taxpayers meet their tax obligation through debt relief programs like Installment Agreements and Offer in Compromise (OIC). Offer in Compromise is a very useful tax relief program that helps taxpayers settle their dues for less than the original amount. Taxpayers requiring help understanding and applying for Offer in Compromise or any other IRS tax relief programs can consult experienced tax attorneys for expert legal advice. But before that continue reading this blog as we present a beginner's guide on offer in compromise.
What is OIC?
An offer in compromise (OIC) is an IRS debt relief program that allows taxpayers to settle their tax liability for a less amount than originally owed. The program aims at giving a fresh start to taxpayers experiencing financial hardship to settle their tax dues with the IRS. Under the program, the IRS evaluates taxpayers' ability to pay, income, expenses, and assets to estimate the reasonable collectional potential (RCP) and doesn’t approve requests if the full amount can be paid through installment agreements or lump sum.
The IRS OIC program is not for everyone. Taxpayers need to check their qualifications before applying for the program. An individual taxpayer is eligible to apply if they:
- Have filed all the personal and business tax returns and made all estimated payments
- Have a valid extension for the current year (if applying for the current year)
- Are not in a bankruptcy proceeding
Businesses also have to ensure that they have paid relevant employees-related federal tax.
Keep in mind that your qualification for being considered for OIC depends on meeting the eligibility criteria. The IRS accepts an offer if they have doubts about liability, doubts as to collectibility, or if they believe that collection of the full amount will cause hardship (effective tax administration).
How to Apply
Taxpayers need to fill out Form 433-A (Form 433-B (Business), submit Collection Information Statements and follow the procedures mentioned in Form 656 to apply for the program under doubt as to collectibility and effective administration. Under doubt as to liability, Form 656 L is to be filled. To simplify and ensure accuracy, it is advisable to hire a tax attorney and get specialized assistance.
IRS offers two payment options post- approval:
- Lump sum payment - In this method, taxpayers can submit 20 percent of the total offered amount during application submission and the rest in five or fewer installments after approval.
- Periodic payment - Here, taxpayers can pay the initial installment at the time of application and continue monthly installment payment until IRS approval until paid in full.
An expert IRS tax attorney can help you determine your eligibility, propose an appropriate offer and fill out the application forms for an OIC. They are also helpful in suggesting whether other provisions such as IRS penalty abatement or payment agreement may be right for you based on your financial capacities. Dallas-residents looking for help under the IRS debt-relief program, consult trusted tax attorneys in Dallas expert in offering advice on debt-relief programs.