Offer in Compromise (OIC)
What you need to know:
- An Offer in Compromise is legal contract with the IRS to settle a past due tax for less than the full amount. There are two types of OIC's; "Doubt as to Collectability " OIC and "Doubt as to Liability" OIC. The most common type of offer is "Doubt as to Collectibility" OIC. The OIC is a formula driven process and not a percentage based formula. In other words, how much you owe in tax is irrelevant to the amount you are planning to offer. The only factor in determining an acceptable offer amount is your income, expenses, and any equity you may have in an asset.
- The IRS is required by law to consider reasonable Offer in Compromise requests. Denial of an Offer in Compromise request may be appealed and the Offer in Compromise my be reconsidered by an appeals officer.
- The Offer in Compromise settlement amount is not based on or related to the amount of tax due. The Offer in Compromise settlement amount is based on a taxpayer's monthly excess income along with a taxpayer's equity in assets.
- Offers in Compromise usually take about 6 months to complete. A $150 application fee in additional a deposit of 20% of the offer amount must be submitted with the Offer in Compromise form (656) as well a financial form (433-A and sometimes a 433-B for self employed individuals.
- Once an Offer in Compromise is accepted by the IRS, the taxpayer has to file and pay all taxes on time for 5 years thereafter.
- Once an Offer in Compromise is submitted, the IRS usually suspends all collection action.
- The IRS may return an Offer in Compromise unprocessed if you are not compliant with current estimated tax payments, filing of returns or if the IRS believes that the Offer was submitted only to hinder or delay enforced IRS collection action.
