An Offer in Compromise (OIC) is one options that anyone struggling with tax debt may take into consideration. This option is basically an agreement between the Internal Revenue Service (IRS) and a taxpayer where the taxpayer offers the IRS a payment lower than the tax obligation. The IRS accepts the payment and forgives the remaining tax balance.
Why would the IRS agree to such a deal? In some instances, the agency can rationalize that some payment is better than none.
When with the IRS consider an OIC? The agency generally takes the payment into consideration after a review of the taxpayer’s ability the tax debt at issue. The agency will review the offering taxpayer’s assets, liabilities and future earning potential.
What does a taxpayer need to do to get an OIC? First, a taxpayer must file all unfiled tax returns. The agency also prefers payment for all current tax obligations. At this point, the taxpayer can put together an OIC for outstanding tax obligations from previous years.
If the proposed OIC is accepted, the taxpayer will generally make the payment to the IRS in one of two methods. Either the taxpayer will pay one lump sum or make up to five payments to the IRS within five months of acceptance.
What are the risks that come with an OIC? All risks should be taken into consideration before moving forward with an OIC. These include the loss of any tax refund during the year the OIC is accepted. If you receive an approval for an OIC in 2018 and file your taxes at the end of the year only to find you receive a refund, the IRS gets that refund. The taxpayer is also required to stay current on tax obligations for five years following the acceptance of the OIC.