Offer in Compromise FAQs

An offer in compromise is a popular tax resolution strategy, but it’s also one that’s frequently misunderstood. For instance, applicants can’t come up with an offer amount out of thin air; rather, it must align with the reasonable collection potential. Furthermore, there are some disadvantages to filing an offer in compromise such as tolling statute of limitations for collection. This page contains offers in compromise FAQs to help you better understand the OIC process and criteria.

Sacramento tax relief attorney Jin Kim files offer in compromise applications with the Internal Revenue Service. To learn more about her offer in compromise service and how she can help you for a flat fee, call her office at (916) 299-9913 for a free consultation.

Can The IRS Reject My Offer In Compromise?

Yes, the IRS can reject your offer of compromise (OIC). When you submit an offer of compromise to the IRS, the case is assigned and reviewed. The IRS will consider several different factors in deciding what’s the best course of action to take with your case. It’s important to remember that an offer of compromise isn’t the only option on the table. For example, if your reason for submitting an offer is that your business is suffering a temporary setback, then the IRS may instead suggest delaying payment rather than accepting your offer in compromise. In some instances, the IRS may also impose additional terms before your offer is accepted, such as making the dissolution of your business a requirement before accepting the offer.

What Can I Do If The IRS Rejects My OIC?

There is always the remedy of appeal if the IRS rejects your offer of compromise. If the IRS decides to reject your offer, you will be informed in writing that your offer is rejected. You will also be informed of the reasons why your offer was rejected. You will also find in your letter instructions detailing how to appeal the decision. Appeals are sent to and handled by the IRS Office of Appeals. If you want to appeal the decision, take note that you should file your appeal within thirty days from the date of the letter.

What Does It Mean If The IRS Returns My Offer In Compromise?

If the IRS returns your offer, it doesn’t necessarily mean that the offer has been rejected. The most probable reason is that you haven’t submitted all the necessary files and forms along with your offer. If the IRS returns your offer in compromise, you can resend your offer to the IRS after complying with the lacking requirements.

How Can I Ensure That The IRS Will Approve My Offer?

It’s necessary to comply with all the requirements and fees to ensure the best chances of your offer being accepted. You shouldn’t try to lowball the IRS when making an offer, either. The IRS keeps tabs on taxpayers’ ability to pay with the so-called Reasonable Collection Potential (RCP). The IRS calculates this by taking into consideration a taxpayer’s assets. Assets may include future income. Through the RCP, the IRS can measure a taxpayer’s ability to pay the tax liability. If your offer is lower than your RCP, the IRS will reject your offer, preferring instead to collect the entire amount owed.

You should also be qualified to submit an OIC; otherwise, the IRS will reject your offer. Being qualified means that you’ve filed all tax returns, made the required federal tax deposits, and made the required estimated tax payments for the current year. Furthermore, you must have a basis for filing the offer in compromise, such as effective tax administration, doubt as to liability, or the most popular – doubt as to collectibility.

Is There An Application Fee?

Yes, there is an application fee if you submit an offer in compromise. The fee will be stated in Form 656. There are two exceptions to the payment of the application fee:

If the basis of the offer is that there is doubt as to liability, the applicant is exempted from paying the application fee.
If the individual qualifies for the low-income exception. Take note that this applies only to individual taxpayers and does not apply to corporations, partnerships, or entities who wish to submit an offer in compromise. An individual is a low-income individual if their adjusted gross income for the most recent taxable year falls below 250% of the poverty guidelines published by the Department of Health and Human Services. Alternatively, an individual is also considered low income if a household’s monthly income multiplied by twelve falls below the 250% threshold.

Do I Need An Attorney To Get An Offer in Compromise?

No. You do not need to hire a tax attorney to submit an offer in compromise. However, your chances of getting an offer accepted by the IRS will probably improve should you hire a tax attorney.