Settling with the IRS, also known as an Offer in Compromise (OIC), is a process by which taxpayers can resolve their outstanding tax debts for less than the full amount owed. When the IRS Fresh Start Program during COVID became increasingly popular, the OIC was a common choice by many people which is administered by the IRS. It's designed to provide a way for taxpayers who are unable to pay their full tax liability to resolve their debt and move on with their lives.
The IRS will typically settle for a payment that equates to 20% of the total tax liability owed by the taxpayer. This payment is known as a 'periodic payment offer', because it is usually paid in installments over a period of 6 or more months, or within 24 months after acceptance. Payment arrangements can be tailored to meet individual taxpayers' needs; those with complex financial situations may choose to specify one particular tax liability that their payment should cover. It is important to note that the taxpayer's monthly payment must continue until it reaches the original agreed amount before the debt can be considered paid in full.
There are many reasons why someone might want to settle with the IRS. One common reason is that the taxpayer is facing financial hardship and cannot pay their full tax liability. In this case, an OIC can provide relief by reducing the amount owed to a more manageable amount. Additionally, it can provide closure and final resolution to long-standing tax debt and avoid further penalties and interest accruing. Some people also seek to settle with the IRS to avoid wage garnishments, bank levies, or other collection actions. Ultimately, settling with the IRS can help taxpayers avoid unpaid taxes' stress, and financial burden.
An Offer in Compromise (OIC) is a program administered by the Internal Revenue Service (IRS) that allows taxpayers to settle their tax debt for less than the full amount owed. The program is designed to provide relief for taxpayers who are unable to pay their full tax liability but have the ability to make a one-time payment or a series of payments toward their debt.
The Offer in Compromise program is intended for taxpayers who have legitimate doubt as to the amount of tax liability owed or those who are facing economic hardship and are unable to pay the full amount. When assessing an Offer in Compromise, the IRS will consider a variety of elements such as the taxpayer's ability to pay off debts, their income level and expenses, along with any assets they may hold.
To be considered for an Offer in Compromise (OIC), taxpayers must submit a comprehensive application along with the corresponding non-refundable processing fee. This paperwork should include financial documents, including income, outgoings, and existing assets to enable the IRS to make an informed decision on whether or not your proposal is accepted. The Internal Revenue Service will then review all of this information and determine if they can approve your offer as submitted; reject it outright; or return further details from you before making their determination.
If the OIC is accepted, the taxpayer will be required to make a one-time payment or a series of payments as agreed upon. It's important to note that even if an OIC is accepted, it is not a guarantee that the debt will be fully resolved. The IRS can still continue to collect the remaining tax debt balance if they find out the person has not provided accurate and complete information or the person's financial situation has changed.
The IRS has certain eligibility requirements that taxpayers must meet in order to qualify for the Offer in Compromise (OIC) program. These requirements include tax compliance requirements and financial requirements.
Tax Compliance Requirement: In order to be eligible for the OIC program, taxpayers must be up-to-date on all filing and payment requirements. This means that they must have filed all required tax returns, and made all required estimated tax payments, for the current year and the past several years. Additionally, they must not have any pending tax-related court cases or appeals.
Financial Requirements: The IRS also takes into account the taxpayer's ability to pay when evaluating an OIC application. They will consider the taxpayer's income, expenses, and assets to determine if they are able to pay their tax liability in full through a payment plan or if they are unable to pay their liability. The IRS will also take into account your ability to pay in the future and will reject an offer that does not provide for full payment of tax liability within the statutory period of collection.
The IRS considers various factors such as your income and expenses, your assets and their liquidation value, and your future earning potential when evaluating your financial eligibility for the OIC. To demonstrate this inability to pay and to improve the chances of acceptance, taxpayers will be asked to submit financial information such as pay stubs, bank statements, and other documentation.
It's important to note that meeting the eligibility requirements does not guarantee that the OIC will be accepted. The IRS will also evaluate whether the amount offered in the OIC is equal to or greater than the Reasonable Collection Potential (RCP), which represents the amount the IRS believes it can collect from the taxpayer through standard collection actions like wage garnishments or bank levies.
Ultimately, the Offer in Compromise (OIC) program allows taxpayers to settle their delinquent tax debts for a lower amount than what is owed. This scheme has been created to provide relief for individuals who cannot pay off their full liability but still have adequate funds available to make a single payment or installments against the debt.
The key points discussed in the post include the eligibility requirements for the OIC program, which include tax compliance requirements and financial requirements. The IRS will also evaluate the settlement amount based on the taxpayer's ability to pay and their financial situation. The settlement percentage offered by the IRS varies case by case but often varies from 20% to 80% of the total tax debt.
It is essential to understand that settling with the IRS comes with its own set of consequences. The process can be intricate and lengthy, and the IRS may even deny an Offer in Compromise if they think you're able to pay your full tax debt. For this reason, it's best to consult a tax professional before making any choices—they will aid in navigating through this course of action as well as increase your odds of success.
Overall, individuals facing a large tax debt should consider the Offer in Compromise program as a viable option. However, they should weigh the risks and benefits and thoroughly evaluate their situation before making a decision. If you are uncertain about your eligibility or the best course of action for your particular case, it's always a good idea to consult with a tax professional who can guide you through the process.