Offer in Compromise (OIC)
Last updated October 15, 2009
An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. It is an out of court agreement between the IRS and the taxpayer that resolves the taxpayer's liability. Absent special circumstances, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The Internal Revenue Service has the authority to settle or compromise federal tax liabilities by accepting less than full payment under certain circumstances. These circumstances are:
- Doubt as to liability - doubt exists that the assessed tax is correct.
- Doubt as to collectibility (most common) - doubt exists that you could ever pay the full amount of ax owed.
- Economic hardship
The most common resolution for an Offer in Compromise is doubt as to collectibility. The inquiry in this type of OIC is substantially similar to inquires made in a bankruptcy, i.e. Income is lower than acceptable expenses, insufficient assets to satisfy the debt if liquidated, etc. Many taxpayers file an OIC after receiving a discharge in bankruptcy in order to settle non-dischargeable tax debt.
OIC Payment Options
In general, a taxpayer must submit a $150 application fee and initial payment along with the Form 656, Offer in Compromise. Taxpayers may chose to pay their offer in compromise in one of three payment options:
- Cash (paid in 5 months or less).
- Short Term Periodic Payment Offer - Payable in non-refundable installments; the offer amount must be paid within 24 months of the date the IRS received the offer. The first payment and the $150 application fee are due upon filing the Offer in Compromise IRS Form 656. Regular payments must be made during the offer investigation.
- Deferred Payment (payment terms over the remaining statutory period for collecting the tax). Payable in non-refundable installments; the offer amount must be paid over the remaining statutory period for collecting the tax. The first payment and the $150 application fee are due upon filing the Offer in Compromise IRS Form 656. Regular payments must be made during the investigation.
Filling out the OIC correctly is critical. If you are unsure how to go about doing this, we advise you get the help of tax attorney.
For more information, here is the IRS publication on How to File an Offer in Compromise, and IRS Form 656.
Tax Levies | Types of Tax Levies | Offer in Compromise
Do you have a question you feel we haven't answered?
For a small fee, you can talk to a counselor on the phone or Buy the Book!
|
