Offer in Compromise

There are some circumstances under which you may be able to settle your tax debt with the Internal Revenue Service (IRS) and actually pay substantially less than what you owe.  An offer in compromise (OIC), if accepted by the IRS, may result in a major decrease in your tax liability, thus improving your ability to pay your tax debt along with your other financial obligations.

Defining Offer in Compromise

If you are unable to pay your tax debt, you can formally submit an OIC as a proposal for the settlement of your debt.  There is no legal obligation for the IRS to accept your proposed OIC, and, in fact, the IRS accepts fewer than half of the OICs that are submitted by taxpayers.  However, you may be eligible for OIC consideration by the IRS if your situation meets one of the following conditions:

• Doubt as to Collectibility - There is some reason that your tax bill may not be collectible, either now or in the future.
• Doubt as to Liability - There is some doubt as to whether you really owe the tax bill.
• Economic Hardship – Based on your individual circumstances, payment of your entire tax bill would cause financial hardship, or be unfair and/or inequitable in some way.
  

If your situation meets one of the conditions listed above, you may be eligible for OIC consideration.

The Offer in Compromise Process

In order to submit an OIC proposal to the IRS, you must first complete IRS Form 656 – Offer in Compromise, and submit to the IRS, along with a $150.00 filing fee.  If your monthly income is below the federal poverty guidelines, however, you may submit an Application Fee Worksheet from the IRS Form 656 instruction booklet, and file the OIC proposal without the required fee.

Additionally, you must complete IRS Form 433-A – Collection Information Statement.  If you live in a community property state, you may have to provide information about your spouse on this form, as well.  You will need to be sure to complete this form as thoroughly and carefully as possible.

After you submit the required forms, the IRS will ask you for a great deal of financial documentation, which can include paycheck stubs, bank account statements, outstanding bills and accounts, and verification of your assets.  In this sense, an OIC request can result in extremely extensive and time-consuming information gathering on your part.

Read more on Offer of Compromise Help for Rejections and Appeals.

How a Tax Attorney Can Help

An experienced tax attorney can help guide you through the OIC process, and advise you on the proper means of complying with the IRS’s request for financial information and documentation.  Furthermore, an attorney with extensive experience in submitting OICs may be able to give you a clear sense of the benefits and disadvantages of proposing an OIC in your situation, as well as the likelihood of success in your case.