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IRS Offer in Compromise Lawyer
Receiving a large tax bill from the IRS is frightening. The IRS has a reputation for aggressive collection, and the interest that accrues on tax debt can bury some taxpayers. However, when the amount of tax debt overwhelms the taxpayer’s financial condition, an offer in compromise may be a viable tax resolution option. An offer in compromise is an offer on the part of the taxpayer to pay a reduced amount due to certain extenuating circumstances recognized by the IRS. An offer in compromise is a good option to take if you can afford part of your tax bill – but not all of it. Here are some things to know about offers in compromise including how you can qualify for this tax resolution strategy.
Jin Kim is a California tax attorney helping clients secure offers in compromise with the Internal Revenue Service. Learn more about her practice, flat fee options, and payment plans by calling her office at (916) 299-9913 for a free consultation.
What Is An Offer In Compromise?
Ordinarily, when the IRS assesses a taxpayer with additional tax liability, the taxpayer is expected to pay the amount in full. One exception to this rule is the offer in compromise (OIC). In effect, an OIC is an agreement entered into between the IRS and the taxpayer where both parties agree that the taxpayer will pay less than the total amount owed. While an OIC seems like a great option to reduce your tax bill, there are also stringent requirements before the IRS will grant an OIC.
When Can I Qualify For An Offer In Compromise?
You can use the IRS offer in compromise pre-qualifier tool online. However, we always recommend consulting with a tax attorney to determine whether you qualify for an offer in compromise, even if the pre-qualifier tool says you’re not eligible.
A taxpayer can secure an offer in compromise under the following circumstances:
- When There Is Doubt As To Liability – the IRS will accept an OIC from a taxpayer when there is doubt that the taxpayer is really liable for the assessed amount. The most common example for this scenario is when there is doubt that the tax assessed is correct, but to save everyone’s time, the taxpayer is willing to pay, provided that they are allowed to pay a lesser amount.
- Doubt As To Collectibility – Unlike the first instance, the assessed amount of tax is correct, but there is doubt as to whether or not the taxpayer will be able to pay it in full. If a taxpayer will claim this reason, the IRS will look at the taxpayer’s Reasonable Collection Potential (RCP). The RCP is a computation of the taxpayer’s total assets, including future income. The RCP is used by the IRS to measure the ability of the taxpayer to pay. Usually, the IRS will not accept an OIC if the offer is lower than the taxpayer’s RCP[1].
- Effective Tax Administration – In this case, the assessed amount is correct and there is no doubt that the taxpayer is able to pay the entire amount. However, the taxpayer can claim exceptional circumstances and show that if the entire amount is collected, it would cause undue economic hardship. Equity considerations or public policy may also be taken into consideration by the IRS if the taxpayer claims this as a reason for making an offer in compromise.
How Do I Apply For An Offer In Compromise?
The manner of applying for an OIC will depend on your legal basis for pursuing an OIC.
- If the taxpayer is submitting an OIC based on Doubt As To Collectibility or Effective Tax Administration, the taxpayer will need to submit Form 656, Offer in Compromise, Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B (OIC), Collection Information Statement for Businesses.
- If the taxpayer is submitting an OIC based on Doubt As To Liability, the taxpayer will need to submit Form 656-L, Offer in Compromise (Doubt as to Liability), and Form 433-A (OIC) and/or Form 433-B (OIC).
When filing an application for an OIC, it’s helpful to engage the services of a tax professional such as a flat-fee California tax attorney to ensure the best chances of your application getting approved.
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