A Guide to Getting An Offer In Compromise Accepted

Megan Ferrantino
Expert Contributor
Last Updated:
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Key Points:

  • If you feel overwhelmed by tax debt, you can take steps to reduce your stress regarding your outstanding tax balance.
  • An offer in compromise (OIC) is a beneficial strategy for tax relief. It requires a lengthy inquiry, extensive documentation, and IRS approval.
  • Our Solvable team can help you contact tax professionals who can guide you through the offer in compromise application process.

An offer in compromise can provide taxpayers with peace of mind and some relief from their tax concerns. Ultimately, the IRS has the final say as to whether your compromise will be accepted or rejected, but you can take several steps to ensure your application is complete and increase the chances of your OIC being accepted. Issues with taxes and tax relief options can be intense and overwhelming, but with support from our Solvable team, we can work together to resolve your tax concerns.

What Is an Offer in Compromise (OIC)?

An OIC is a program specifically for taxpayers who are unable to pay the taxes that they owe. An OIC can also be initiated for taxpayers who would experience the struggles of financial hardship if they paid the full amount of their tax balance. Essentially, with an OIC, you can potentially settle your tax bill with the IRS for less than the tax amount that you owe. However, you should be aware that the IRS can accept an OIC, reject an OIC, or return an OIC application to a taxpayer for any reason.

The Decision-Making Process for an OIC

The IRS makes the determination about whether to grant a taxpayer an OIC. The decision by the IRS to accept or reject a compromise depends upon several factors regarding the taxpayer including the following:

  • Income
  • Ability to Pay
  • Expenses
  • Assets

The IRS is incredibly thorough during the OIC application process. They scrutinize the financial history of the taxpayer, and all records and documentation get checked for accuracy and integrity. Scrutinizing a taxpayer’s financial history, the IRS will check all records and documentation provided by taxpayers. If the IRS believes that you are not able to pay what you owe in taxes, the agency may decide to move forward and grant you an OIC.

The IRS also delves into a taxpayer’s expenses as well as an individual’s assets in order to confirm that a person is unable to pay one’s tax balance. For example, if you request an OIC and report that you do not have the funds to pay your taxes, then your expenses should not reflect that you recently purchased a brand-new car or made a considerable down payment on a luxury vacation getaway. The IRS is merely conducting its due diligence to ensure that any compromise the agency grants is a justified and well-deserved one.

A Guide to Getting An Offer In Compromise Accepted

Who Is Eligible to Receive an OIC?

According to the IRS, applicants are eligible for an OIC when they are unable to pay the full amount they owe in taxes within a sensible time frame. Upon an extensive review of a taxpayer’s assets and income, the IRS will determine a taxpayer’s eligibility for an OIC. If you’re interested in checking your eligibility for an OIC, you can do so by completing the online Offer in Compromise Pre-Qualifier questionnaire.

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Requesting an OIC

Taxpayers may request an Offer in Compromise by selecting one of the following reasons:

  • Doubt as to Collectibility
  • Doubt as to Liability
  • Effective Tax Administration

If you cite Doubt as to Collectibility as your reasoning behind submitting an OIC, you acknowledge that you cannot pay your tax balance. Before you declare Doubt as to Collectibility on your OIC, you could potentially enter into a long-term monthly installment agreement or a partial-pay installment agreement. Ultimately, you could be declared not currently collectible by the IRS.

If you list Doubt as to Liability as your reasoning, you indicate doubt that you are responsible for the balance of your taxes. If you believe that you are not responsible for the taxes, you are required to submit a signed statement explaining why you are doubtful about your tax balance. Before you plan to declare Doubt as to Liability, your alternative options for resolving any liability issues are to file an amended tax return, to request innocent spouse or injured spouse relief, to request penalty abatement, or to request an audit reconsideration.

The final reason that taxpayers would request an OIC is for Effective Tax Administration. Essentially, the Effective Tax Administration reason is chosen when taxpayers believe that they are experiencing an exceptional situation or circumstance and that if they were required to pay their taxes, this payment would create a serious and unfair economic hardship for them.

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An example of a severe economic hardship would be if a taxpayer endured long-term serious health problems. Before planning to declare Effective Tax Administration as your reasoning, your alternative options include filing an OIC based on Doubt as to Collectibility, seeking a long-term installment agreement, requesting a partial-pay installment agreement, being declared not currently collectible by the IRS, or seeking penalty abatement.

Understanding the Terms and Conditions of an OIC

Taxpayers should be aware of the following terms and conditions that they are responsible for when submitting an OIC for consideration:

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  • Pay the amount stated in the Offer In Compromise.
  • Pay all taxes on time for the next five years.
  • File tax returns on time.Taxpayers should also be aware that the IRS keeps any payments, refunds, and credits that were applied to taxpayer tax debts before submission of the OIC. The IRS holds any tax refunds that were payable to the taxpayer during the year the OIC was approved.

Submitting an OIC Application to the IRS

Failing to provide the proper documentation for an OIC application will result in the application being returned to you. It is impossible for the IRS to process an incomplete application. Therefore, in order to avoid having an OIC application you submit returned to you, you need to make sure that you submit all necessary documentation, forms, and records along with your completed application to the IRS so that the agency has all of the information required to make a decision.

Make certain you meet the following conditions to ensure a completed application for an OIC:

  • No open bankruptcy case exists against you.
  • You have filed all federal tax returns.
  • You need to have filed payroll tax returns and made timely deposits of payroll taxes for the prior two quarters if applicable.
  • You need to pay the $150 OIC application fee or you may request a fee waiver.
  • Submit IRS Form 656, Form 433-A, or Form 433-B and any supporting documentation with the forms.
  • Stay up-to-date with your estimated taxes or income tax withholding for the current year.

You want to triple check that you have all of the correct forms, supporting documentation, and fees in place before you send your OIC to the IRS. To give yourself the best chance at having your offer accepted, you must submit a full and complete application.

Tips for Getting an Offer in Compromise Accepted

  • Demonstrate financial need
  • Continue to submit current tax returns
  • Determine how much money to offer
  • Reapply for an OIC (if necessary)
  • Appeal an OIC

You must demonstrate to the IRS your financial need in order for the agency to grant you an OIC. The basic way of revealing your financial need is by providing your financial records, bank statements, pay stubs, and any supplemental financial paperwork that you feel gives your application validity. You can never be too thorough when submitting your financial information, and all of this information that you provide only helps to strengthen your application.

You’ll also need to stay current on your tax returns during the application process. You are still responsible for submitting a current tax return, even if you’re applying for an OIC for a previous tax year.

When determining how much to offer for your OIC, you are required to submit IRS Form 433. This form serves to assist you with determining how much you want to offer for your OIC. The form calculates the amount for your compromise based upon the value of your assets, your monthly income, and your monthly expenses.

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If your application for an Offer In Compromise is rejected, you have the ability to reapply. The IRS will contact you regarding its decision in writing, and the agency will state a reason that explains why the agency rejected your offer. If your application was rejected because the amount you offered was too low, simply submit your original application and supporting documentation along with a letter stating that you’ve increased the amount of the offer.

As a taxpayer, you have the right to appeal the rejection decision made by the IRS. However, you are unable to appeal an OIC that has been returned. If your OIC was returned, you can make the necessary changes and resubmit your application.

If your OIC was rejected, you have 30 days from the date listed on the rejection letter to appeal. The rejection letter will explain all the details of the appeal process. Additionally, the IRS provides a convenient online questionnaire that asks you several questions in order to help you decide whether you should appeal an IRS decision.

Does an OIC Affect Credit?

Typically, tax relief programs such as an OIC will not affect your credit. However, you must apply for the OIC before the IRS takes collective action. In order for your credit to remain intact, you’ll need to make any payments to the IRS in a timely fashion; otherwise, the IRS may issue a tax lien against you.

Tax liens can cause damage to your credit score for years. Thus, you want to pay your tax balance on time in your dealings with the IRS. After your Offer in Compromise has been accepted, all payments have been made to the IRS, and all agreements are satisfied, the IRS releases all tax liens that have been filed against you.

How Solvable Can Help You With an OIC

Solvable is passionate about helping Americans find their financial foothold by resolving their debt struggles. If you’re prepared to submit an Offer In Compromise, our knowledgeable team is eager to help you. Our representatives work to support you and will help you find working solutions to conquer your debt. We have conducted a great deal of research on numerous debt-management companies, and we have rated each company based on a range of factors.

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All you have to do is compare the companies we’ve rated and choose one of the companies that you believe would best be able to assist you based on your needs. Next, you’ll want to contact the company you wish to partner with either by phone or by completing a brief contact form. Once you make contact with your chosen company, you’ll be eligible to receive a free consultation with the business. Finally, after your debt situation has been resolved, contact a member of our team and let us know if you were happy with the company you selected or if you’d prefer to work with an alternate services provider.

At Solvable, we offer a brief online quiz to help you check your eligibility for a tax settlement. Simply answer the questions and we’ll provide all of the information you need to get assistance with your tax settlement. We’ll put you in touch with tax professionals who are available to help you with your needs.

An Offer in Compromise can provide relief and give you a breath of fresh air if you’re overwhelmed by tax debt. Contact one of the debt-management companies on our list for help with your Offer In Compromise application.

 

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Megan Ferrantino
Expert Contributor
Last Updated: