Does the IRS Have a Tax Debt Compromise Program?
Yes, the IRS lets taxpayers settle a tax debt for less than what they owe via a tax debt compromise program called an Offer in Compromise (OIC).
To qualify for the OIC option, you must submit an offer with supporting documents to the IRS that shows paying a tax debt in full would cause you to suffer financial hardship.
There are two kinds of OIC tax debt compromise payment plans available:
Lump Sum Cash Payment
You must be able to pay your lump sum offer amount in five months or less. When you submit your offer, you will need to include 20% of your OIC amount and the $205 application fee. The 20% will be applied directly to your tax debt.
Periodic Payment
Your first OIC payment and the application fee must be paid when you submit your offer. You will continue making monthly payments while waiting for the IRS to either accept or reject your offer, and then once accepted, until your debt is paid in full.
How Do I Qualify for an IRS Tax Debt Compromise?
The IRS usually approves a tax debt compromise offer if you offer an amount, based on your ability to pay, that the IRS can expect to receive in a specific time frame. However, if the IRS has evaluated your supporting financial documentation and determined that the amount is too low for your combination of income, assets, and expenses, they may reject your offer.
All taxpayers are eligible to apply for an OIC if they are up to date on tax returns and not currently in a bankruptcy proceeding. Business owners and employers need to complete Form 433-B OIC and individuals must complete Form 433-A OIC if they wish to apply and submit an offer.
What are the Benefits of a Tax Debt Compromise With the IRS?
By making an offer on a tax debt that you cannot pay in full due to financial hardship, the IRS allows you to get rid of a tax debt that you would otherwise pay in monthly installments.
Since the IRS adds interest to past due tax amounts until they are completely paid off, a tax debt compromise can not only eliminate back taxes but also save taxpayers money by reducing higher interest charges on the original tax owed.
How Do I Submit an Offer for the Tax Debt Compromise Program?
The OIC Form 656 contains everything you need to get started on filling out and submitting your tax debt compromise offer. Forms for both individual taxpayers and employers can be found in the booklet.
To make sure the IRS does not reject your offer for lack of financial information, you must include documentation for your assets, bank accounts, current and future income, living expenses, and whether you own property or rent your home.
What is the Minimum Offer Amount the IRS Will Accept for a Tax Debt Compromise?
“Reasonable collection potential” is the process that the IRS employs to determine if your OIC tax debt compromise offer is acceptable according to your ability to pay. The amount the IRS calculates using RCP factors is applied to the offer you make for an OIC.
If your offer is less than the reasonable collection amount, the IRS will reject that offer. In other words, an OIC offer must be at least equal to what the IRS calculated using RCP.
Will the IRS Release a Federal Tax Lien If I’m Accepted into the Tax Debt Compromise Program?
Yes, a lien is released only if your OIC offer is accepted and if the past due tax debt has been paid in full. However, if you are waiting on the IRS to approve an OIC, the IRS could file a public Notice of Federal Tax Lien.
An NFTL notifies creditors about your tax debt. In most cases, the IRS does not file an NFTL until they have decided to either approve or reject your offer.
What are IRS Debt Settlement Alternatives to a Tax Debt Compromise?
Long-term IRS monthly payment plans called installment agreements are available for taxpayers owing less than $50,000 in combined tax, interest, and penalties. Short-term payment plans allow taxpayers to pay off a tax debt in six months or less.
In certain cases, the IRS may temporarily delay collections when your financial hardship qualifies for Currently Not Collectible status.
How Can Wiztax Help?
We can determine your eligibility to settle your tax debt and work on your behalf directly with the IRS. You can schedule a free call or start online by answering 6 simple questions. We never charge for ‘investigations’ or consultations.
6 Simple Questions. Free Evaluation.
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