Do you remember the last time you were driving in your car and you heard one of those tax resolution adds on the radio? You probably thought about it for a second and then determined that it was just too good to be true and that most likely there had to be a catch. After all, the IRS is not in the business of giving away money for nothing. So could it really be possible for someone who owes the IRS a large tax debt to settle that debt and get away with paying a much lower sum? It couldn’t be possible, right? Well, the answer is both yes and no. Sound confusing? Well, getting the IRS to agree to reduce your tax debt all depends on your individual circumstances. So let’s take a closer look.
What Is an Offer in Compromise?
Fist off, this process has a name. It’s called an offer in compromise, or OIC, and essentially it’s an agreement between the IRS and a taxpayer that allows the taxpayer to settle his or her tax debt with the agency for less than the actual amount owed. So how does it work and can anyone get an offer in compromise? The key to any offer in compromise is the taxpayers overall financial situation. In other words, anyone can ask for an OIC, but only those taxpayers who meet certain criteria are likely to have their offer accepted. Keep this in mind: if you have the necessary funds and ability to pay off all your tax debt, then there is almost no chance that the IRS will agree to an offer in compromise. That’s even true if you don’t currently have the income or assets to pay, but the IRS feels that you will have those assets within a reasonable amount of time. Therefore, if you owe taxes and you have enough to pay it off, the IRS is not going to let you off the hook.
How to Be Considered?
So, who is likely to qualify for an OIC and what criteria must they meet? The IRS will look at three main criteria to determine if someone should qualify for an OIC. If you meet one or more of these situations then your offer could be accepted:
- If you are experiencing exceptional circumstances in which full payment would cause you inequitable or unfair economic hardship, then the IRS is likely to accept your OIC. For example, if payment in full were going to leave you with insufficient assets to pay for your basic living expenses then chances are your offer will be accepted.
- If the real amount of your tax liability is in question and you can show reasonable doubt about the amount you owe, then the IRS might accept your OIC.
- If the IRS agrees with you that you will not be able to pay the full amount over a reasonable time period, then the agency are likely to accept your offer.
Make Your Offer Count
In order to qualify for any of these circumstances you will have to prove your argument and you can be sure that the IRS will do its homework before accepting the terms of your offer. The agency will closely examine your all your assets and income, as well your overall financial well being as it makes a decision. They will also look at your future earning potential as well as estimated future living expenses. In addition, it is up to you to determine your offer to the IRS, which should be based on the net value of your excess monthly income plus your current assets after your monthly expenses have been calculated. The important principle to remember is not to offer less than what you’re capable of paying. While the IRS will likely accept your offer if you meet the requirements, it will still want to get as much back as it can.
If you are facing serious tax debt and you believe that your situation would qualify you for an OIC, you can visit the IRS website to learn more about this process. You can also contact us today for more guidance regarding filing for an offer in compromise. Just click here.