Basics of the IRS Offer in Compromise and Who Is Eligible

Here are some details on the challenging IRS offer in compromise, including how to apply and important information.

The process of applying for an IRS offer in compromise, or OIC, which is an IRS program meant to help taxpayers settle at least some of their tax burden, is frequently referred to in advertisements as “settling your tax debt for pennies on the dollar”. However, statistically speaking, the chances of receiving an IRS offer in compromise are quite slim. Out of 49,285 offers, the IRS only approved 15,154 in 2021.

But it’s not impossible. Here is how an IRS offer in compromise operates, what it takes to be eligible, and important information to be aware of.

An IRS Offer in Compromise Is What?

An IRS program known as an “offer in compromise” enables certain taxpayers to settle their tax burden for less than they are owed.

To apply, taxpayers must fulfill eligibility standards, and the IRS denies the majority of applicants.

Application Procedures for an IRS Offer in Compromise

There are three components to an IRS offer in a compromise application:

  • Filled out IRS forms 656 and 433-A. You may also submit Form 656-L if you feel that the tax debt is not yours or doesn’t exist.
  • If you fall inside the IRS low-income requirements, you might not need to pay the $205 non-refundable application cost.
  • A contribution to your anticipated new balance payable.

When you file for an IRS offer in compromise, you’ll have to give a lot of information. All regarding your monthly income, assets, cash, and other debts, as well as your rent, utilities, groceries, and other costs.

It is not necessary to hire a certified tax professional or tax relief company to assist you with the paperwork, and the money you pay them may exceed the amount of money you expect to save on taxes.

How Does the IRS Choose Which Offers in Compromise to Accept

Your “reasonable collection potential,” or RCP, is the amount the IRS believes it can collect from you. Both now and in the future and is determined using financial information about you.

When determining the RCP, the IRS considers a variety of factors, including your assets, vehicles, bank accounts, real estate, present and future income, regular living expenses, place of residence, and even the age of your vehicle. If the amount you provide isn’t equal to or more than the RCP, the IRS won’t accept your offer in a compromise.

Putting math aside, the IRS may accept an offer for the following three reasons:

  • Your tax debt’s existence and amount are the subjects of a legitimate legal challenge.
  • You would suffer financial difficulty if you paid in full, or it would be “unfair and inequitable due to exceptional circumstances.”
  • The IRS is skeptical that it will ever be able to fully recoup its costs from you.

Use Your Part Time Accountant to Maximize Your Tax Savings

If you have any inquiries about the offer in compromise, we advise speaking with a tax expert like Your Part Time Accountant. They know to guarantee compliance, maximize your refund, and guarantee you haven’t overlooked any tax deductions.