USING AN OFFER IN COMPROMISE TO USE YOUR TAX DEBT:
Tax debt is nothing to look over, especially when you owe an outrageous amount. It is sometimes possible to wipe your tax slate clean at an enormous discount.
If you cannot afford your tax debt, the IRS must decide if and also a perfect way for you to settle your debt.
WHAT IS AN OFFER FOR COMPROMISE?
The Internal Revenue Service (IRS) is ready and willing to work with taxpayers who come up short at tax time. The use of the offer in compromise (OIC) initiative is one of a few advantageous possibilities taxpayers have to work things out with the IRS to resolve any tax dispute.
An OIC is a way for a taxpayer to resolve his or her debt for less than the amount that you owe, which is agreeable to the IRS if you meet certain stated requirements. The OIC is a legitimate option if a taxpayer cannot pay his or her full tax liability, or if by doing so or trying to do so creates a financial hardship. The decision will depend on the taxpayer’s unique circumstances such as Income, Expenses, how much equity you have in various assets, and how much of the debt the IRS thinks that the taxpayer will be able to pay.
There is no assurance that the IRS will accept your OIC application. The IRS considers several factors or conditions to approve the offer in compromise (OIC) to the taxpayer.
There is no legal right to have a valid tax bill reduced by the IRS — it is entirely a matter of government discretion. In all but a few instances, however, the IRS must at least give a properly submitted OIC fair consideration. In recent years, up to 40% of the OICs submitted were accepted by the IRS, a relatively high percentage compared to prior years.
THE BASIS OF AN OFFER IN COMPROMISE (OIC) APPLICATION;
The OIC offers a taxpayer that cannot settle or resolve his or her tax obligations with the Internal Revenue Service (IRS) an opportunity to get rid of this tax burden, but merely wanting or desiring a deal with the agency will not cut it, because everyone wants there tax debt reduced to an extent that they can afford. To qualify for the OIC, the taxpayer will have to prove that the following exists:
There is some doubt as to whether the IRS can collect the tax bill from you — now or in the foreseeable future. The IRS calls this “Doubt as to Conductibility.”
Due to exceptional circumstances, payment of your full tax bill would cause an “economic hardship” or would be “unfair” or “inequitable.”
There is another more rarely used ground: “Doubt as to liability.” Taxpayers who want to pursue this must file Form 656-L. This offer is based on a claim that there is doubt as to whether the tax liability assessed is correct. This is an unusual and more difficult avenue to pursue.
The Internal Revenue Service (IRS) recommends every taxpayer to make use of its online pre-qualifier tool to determine whether you are eligible to apply for an offer in compromise (OIC).
The Offer in Compromise (OIC) Process:
The application for an OIC is a formal process and should be addressed as such by everyone applying for an OIC, so that he or she can stand a chance of being accepted by the agency.
Any individual applying for an Offer in Compromise (OIC) should;
Make sure that he or she is eligible. The IRS recommends the taxpayers applying for an OIC to use the OIC PreQualifier tool to confirm their eligibility and prepare a preliminary proposal. To eligible the taxpayer should;
· Not have an open bankruptcy case.
· Have filed all federal tax returns that you were required to file
Start by completing the IRS Form 656, “Offer in Compromise” . There is a $186 fee (non-refundable) for filing an OIC which must be attached to the IRS Form 656.
As part of the OIC, every individual applying must provide detailed personal and financial information to the agency using the IRS Form 433-A (individuals) or Form 433-B (businesses), Collection Information Statement. If you are married and live in a community property state, the IRS may request that your Collection Information Statement include personal information about your spouse, even if you alone owe the IRS. Take particular care in filling in this form correctly if you are serious about your OIC. You must be current with estimated taxes and/or income tax withholding for the current year.
Select a payment option: the taxpayer will have to select his or her payment option. The payment option the he or she can choose from are;
Lump Sum Cash: In this case the taxpayer will have to submit an initial payment of 20% of the total offer amount with his or her application If the application is accepted by the Internal Revenue Service (IRS), he or she will receive a written confirmation. Any remaining balance due on the offer is paid in five or fewer payments.
Periodic Payment: In periodic payment, the individual has to submit initial payment with his or her application. Then the individual will continue to pay the remaining balance in monthly installments while the Internal Revenue Service (IRS) considers the offer. If the Offer is accepted, he or she has to continue paying the balance monthly until it is paid completely.
Special Consideration:
The IRS gives special consideration to people with physical or psychological infirmities. In particular, the IRS has always favored offers from people with bleak financial prospects due to advanced age — over 60 in particular. And the IRS will consider HIV or drug- or alcohol-related problems, as well as a family member’s problem if it has a detrimental financial effect on you.
The best way to bring special circumstances to the IRS’s attention is through a letter attached to your Collection Information Statement (Form 433-A). It doesn’t have to be formal or fancy, just one or two pages telling your tale of woe. You’ll also need to attach statements from doctors and medical records indicating your condition. If the medical data doesn’t show how the condition prevents you from earning much of a living now or in the foreseeable future, explain this in your own words.
Appealing a Rejected OIC:
The IRS usually gives reasons for not accepting an application in written form. . The IRS usually rejects offers in compromise for one of two reasons:
· The offer is too low.
· You are a “notorious” character — for example, you’ve been convicted of a serious crime.
If the offer is too low, the IRS letter will state what amount is acceptable. You are also entitled to a copy of the report that lists the factors that caused the rejection.
To start a formal appeal, file IRS Form 13711, Request for Appeal of Offer in Compromise within 30 days of the date of the rejection letter. Your appeal to a rejected offer in compromise will not be seriously considered unless all of the following are true:
· You provided all the information requested by the IRS during your offer processing.
· You have filed all past tax returns.