It’s better not to be in a situation in which you must file for an offer in compromise with IRS, but nonetheless, it doesn’t hurt to know what that is. Basically, an offer in compromise is a program that allows tax-indebted persons to clear their IRS debt for a settled lesser amount of money that they actually own. However, this must be an accord between the two parties, and it is accepted only when the debtor simply cannot pay the debt (he’s too old, he’s disabled or the victim of tragic circumstances that render him penniless and homeless).
You must truly be unable to pay your debt in order to be successful in an IRS offer in compromise. The issue of the offer in compromise with the IRS raises more questions than it provides answers, in particular for those that have no idea how the whole process works. That’s why this guide is needed.
Offer in Compromise – Important Details
One of the most frequent questions is “How much will IRS accept an offer in compromise?” As of 2006, the IRS requires 20% of the debt as up-front payment (it’s not refundable) plus an additional 186 US dollars. One of the disadvantages is that it can take up to 2 years for the IRS to accept your offer. If you want to continue your repayments until they’ve made their decision, you won’t have to pay that 20%, but you’ll have to pay a monthly fee, obviously.
Another question that bugs those who want to take their chances with offers in compromise is “How is the compromise amount calculated?” Fundamentally, your minimum offer must be your 12-months’ worth of your monthly disposable revenue/income + the net equity in your assets. This is the only OIC calculator you need.
Okay, so you want to apply for an offer in compromise. Now, you’re probably wondering how to file an offer in compromise. The IRS has a form called the “656 form”. Bear in mind that there are three distinct types of OIC: doubt as to liability, doubt as to collectibility or effective tax administration. You must fill in that IRS OIC form that suits your situation.
The IRS offer in compromise form can be easily found on the website of the institution. To give you a hint of what you’re dealing with, let’s give a quick overview on each of these types:
- Doubt as to liability: You will fill that when you’re doubtful that the tax liability is appropriate.
- Doubt as to collectibility: Fill this when the IRS cannot collect the entire amount of the debt under absolutely any given circumstance.
- Effective Tax Administration: When neither of the above applies, but collecting the debt would leave the debtor in a harsh economic situation (for the disabled and the elderly, in particular).
Other Aspects that People Are Concerned About
Many people fear that this kind of offer will damage their credit score. It’s not true. OICs do not affect your credit rating in any way, in spite of the fact that they’re still public records. A tax lien will be included in your credit report, but that doesn’t have anything to do with your score.
Another thing that horrifies potential applicants is rejection. The first thing you have to do when your offer is rejected is not to despair. One of the main reasons why some offers are discarded is that people rely on a DIY mentality and think that they can do it all by themselves. This is evidently a mistake unless you’re a tax professional (which is quite contradictory with having to apply for an OIC).
When your offer is rejected, you have the right to appeal, but this time you better hire an offer in compromise attorney. Such an individual can help you create a more appealing offer or de-stress you by taking care of the paperwork. Sometimes both. An attorney is indispensable. You can find one by asking Certified Public Accountants; they sure are familiar with the best tax attorneys out there. As for the cost of hiring such an attorney, there’s no fixed sum. It can depend on the seriousness of your case, on how much time they’ll dedicate to it (some of them charge by the hour). The final sum can range anywhere between $2000 and $15.000, but then again, it depends on a variety of factors.
Now you know everything you need to know about this offer, so you can apply for one if you’re in need. If not, it serves as knowledge. Since life is always unpredictable, it’s better to know things from various fields of interest. However, there are strong chances that you read this because you needed to be informed about offers in compromise with IRS and we hope that we’ve managed to provide you with some answers.