Offer In Compromise

Struggling with tax debt can feel overwhelming, but the IRS Offer in Compromise (OIC) program may be the solution you’ve been searching for. This program allows you to settle your tax debt for less than the full amount you owe. But how does it work, and more importantly, can you qualify?

How Does Offer in Compromise Work?

The Offer in Compromise program is designed for taxpayers who cannot pay their full tax liability or doing so would create financial hardship. When you submit an OIC, you’re essentially offering the IRS a lower amount that you can afford to pay based on your financial situation. If the IRS accepts your offer, you pay the agreed amount and your remaining tax debt is forgiven.

Who Qualifies for an Offer in Compromise?

Qualifying for an OIC depends on several factors, including your income, expenses, assets, and overall ability to pay. Generally, the IRS considers:

  • Your monthly income versus necessary living expenses.
  • The equity in your assets, such as property or vehicles.
  • Your ability to pay off the debt within the statutory period.

It’s important to note that not everyone qualifies. You must demonstrate that paying your full tax liability would cause significant financial hardship.

How to Get an Offer in Compromise Approved?

To improve your chances of approval, follow these key steps:

  • Ensure Compliance: Before applying, you must file all required tax returns and make estimated payments if applicable.
  • Complete Form 656: Submit a detailed application using the Offer in Compromise form.
  • Provide Documentation: Include financial statements, proof of income, and asset valuations to support your case.
  • Offer a Reasonable Amount: Your offer must reflect your true ability to pay.
  • Consult a Tax Professional: An experienced advisor can guide you through the process and maximize your chances of success.

Payment Options for an Offer in Compromise

The IRS provides two payment structures for settling a debt through an OIC:

  1. Lump Sum Offer: You pay 20% of the total offer amount upfront and the remaining balance in five or fewer payments within five months after the IRS accepts the offer.
  2. Periodic Payment Offer: You make the first payment with your application and complete the rest over 24 months or less, according to the agreed terms.

Steps to Take Before Applying

Before submitting an OIC, ensure that you have:

  • Filed all required tax returns.
  • Made all required estimated tax payments (for individuals) or federal tax deposits (for business owners with employees).

What Is the Process for an Offer in Compromise?

Here’s a step-by-step breakdown of the OIC process:

  • Determine Eligibility: Use the IRS pre-qualifier tool to check if you meet basic requirements.
  • Submit Your Application: Complete Form 656 and Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses.
  • Pay the Application Fee: There’s a $205 non-refundable fee, though it may be waived for low-income taxpayers.
  • IRS Review: The IRS evaluates your financial situation to determine if your offer is acceptable.
  • Acceptance or Rejection: If accepted, you’ll make your agreed payments; if rejected, you can appeal the decision within 30 days.

Approval Chances

While the IRS has a stringent review process, and the acceptance rate for OICs is relatively low, proper preparation and a complete, error-free application increase your likelihood of approval.

What Is the Success Rate of an Offer in Compromise?

The success rate of OIC submissions varies yearly, but in recent years, about 30-40% of offers are accepted. This means nearly one-third of applicants successfully settle their tax debt for less than they owe. Working with a tax professional significantly improves your chances of acceptance by ensuring your application is accurate and complete.

How Long Does It Take for an Offer in Compromise to Be Accepted?

The OIC process can take several months. On average, it takes 6-9 months for the IRS to review and decide on your offer. During this period, the IRS may request additional information or clarification, so it’s essential to respond promptly to avoid delays.

Don’t just take our word for it—see what our clients have to say! Read our client’s Offer In Compromise Success Stories and discover how we’ve helped individuals just like you achieve financial freedom.

How Clear Start Tax Can Help

At Clear Start Tax, our team of tax professionals and licensed experts specialize in navigating the Offer in Compromise process. From your initial consultation to the final resolution of your tax issues, we’re with you every step of the way, ensuring the best possible outcome. Contact us today for a free consultation to learn how an Offer in Compromise could be a viable solution for your tax problems.