When persons deal with their taxes, one of the biggest barriers is ensuring that they can pay the taxes they owe affordably. Unfortunately, this is not always going to be the case, and in turn, people are going to need various tools to help them deal with the impact from the taxes they have to pay in. That is where an Offer in Compromise (OIC) comes in. But what, exactly, is an OIC?
What Is an Offer in Compromise (OIC)?
The OIC is a program offered by the Internal Revenue Service (IRS) to provide qualified people the opportunity to negotiate a better deal for them in relation to an unpaid tax debt. This negotiated offer for you to pay instead of the initial debt is going to be based on various factors and given in the event that the person responsible for the debt is unable to pay that debt based on the income, as well as the assets owned.
The formula for calculating how much the negotiated price under the OIC involves taking the person’s income, and then subtracting expenses that one cannot do without. These are called necessary expenses, and they refer basically to expenses that are required for the taxpayer to both mind their and, if applicable, their dependents’ health and wellbeing, as well as ensuring that the taxpayer is able to make income. After all, if taxpayers are not able to make money, they are only going to struggle more with paying taxes and taking care of their health and wellbeing, which is not in anyone’s best interest. After this, the formula adds the amount of value you have in your assets, with exceptions made for any exemptions you have. Consulting with an experienced tax attorney will help you determine what assets can be made exempt.
How much it ultimately comes out to is going to be based on the span of time it is going to cover. The formula takes your income, minus necessary living expenses, and multiplies it by 12, if you are expected to pay off the negotiated tax payment in five months or earlier. Meanwhile, if you are expected to pay your offer anywhere from 6 to 24 months, the cost will be multiplied by 24 instead. Less common, but the IRS may also consider extenuating factors, such as your age, employment status, disabilities (either physical or mental), dependents, education, and more when coming to a decision. When actually filling out the application, make sure that you do it the right way in the first place. If you fail to do it properly, the IRS will likely return the form, such as if you did not file all required tax returns. As part of the application, you must also pay a $186 application fee, as well as a deposit of 20 percent of the offer. There is an exception made here, in the event that you qualify for a low-income certification.
What Do I Do If I am Found to Not Qualify for an Office in Compromise (OIC)?
Whether you can apply to have your payment negotiated down under an OIC is going to depend on various factors, and you may onto always be able to meet the IRS’s mandatory qualifiers. However, just because the IRS denies you at first, this does not mean that the initial denial is going to be the final one. If you are not able to pay your debt to the IRS, you should absolutely make sure to submit an appeal to the IRS as soon as possible. Though, it is important that you make sure that no matter how fast you get this appeal to the IRS, that you do it in the proper way. All too many appeals are rejected simply because the person who submitted it did it incorrectly. This can have varying levels of negative impacts, ranging from having your appeal take longer than it should, to even losing the opportunity to appeal it in the first place.
It is a good idea to retain the services of someone to help at all stages of the process, but especially when it comes to the appeal. Be sure to consult with someone, such as experienced tax attorney Timothy Hart. Hart, like any quality tax attorney, will help you figure out how to submit the application properly in the first place, ensuring that your likelihood of being denied is all the lower for it. However, even with an experienced tax attorney on your side, there is still the possibility that a perfectly done application will still be denied. At this point, your tax attorney will help you craft a solid appeal, making as strong an argument as possible for why the denial was erroneous.
Generally, the IRS will accept any offer made that can be shown is the most that can be reasonably paid, after accounting for non-exempt assets, income, and necessary living expenses. If the IRS believes that the offer you made in compromise is a lower payment than you could reasonably do without affecting your health and wellbeing, or your income, it is likely going to reject said offer. As such, you should be careful about trying to pull a fast one with the IRS, hoping that it will approve a negotiated lower amount that is too low for their standards. With all that being said, by working with a tax attorney, you can find whatever ways are available to get as many things exempted as possible among your assets, such that you will not have to worry about these things when it comes to factoring how much money you will owe. The IRS will also try to figure out if there are any extenuating circumstances involved in your life that may influence the IRS to accept less than it would otherwise.
This can be a great approach to take if you think that you can pull it off, but it will ultimately hang over your head for a while. So before you decide on this, be sure to consult your tax attorney to figure out if this is the choice you should make.
