I help taxpayers settle debts with the IRS and often they are interested in an Offer-in-Compromise or at times a taxpayer is unaware they can benefit from this provision. An Offer-in-Compromise aka an offer or OIC is where the IRS accepts less than the total amount owed by a taxpayer to settle the outstanding debt. Yes the IRS may consider this option but many don't really understand how the process works and they fail to obtain OICs much more often than they succeed. However, understanding the process, the options available, and the resulting strategies increase the likelihood of success.
Myths about Offer-in-CompromiseThere are many myths about OICs that you need to be aware of:
- You have to Offer at least 25% or the IRS will not consider it. Debts have been settled for much less in the right circumstances.
- You have to file the OIC when the IRS is really busy, during the tax season, to have a better chance of success. In reality, knowing how the process works it then does not matter when you submit the OIC.
- It is not worth it because the IRS never accepts OICs. I have successfully helped clients obtain Offers so this is not true. It again is probably someone who never learned the process and failed many times and has not resigned to never successfully filing an offer.
The key in the process is understanding the IRS's Reasonable Collection Potential (RCP) calculation. The second key is understanding strategies available to reduce the Reasonable Collection Potential and hence the offer amount. As long as the offer amount meets or exceeds the RCP then the offer should be accepted.
In addition to the RCP there are other requirements to get OICs accepted. According to IRS Topic 204 the following are also required to get an OIC accepted.
"To qualify for an OIC, the taxpayer must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees."
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Be careful when reading about tax law and its application, including my articles, because the wording and definitions are such a challenge and are influenced by writers perspective, specifically his own clients situations that he is mindful of and other situations the writer is not thinking of. The point is talk to your CPA about your situation and circumstances and don't rely on or make conclusions based on articles you read, including articles form irs.gov, because concepts and definitions are not very clear, and of course, they are subject to change. Now is the time to be having discussions about your situation and developing strategies for you and your business. Again, contact me using my information above to discuss your situation. I help business owners all over the U.S. and in foreign countries with their tax returns.