A huge tax debt is just overwhelming to deal with, but fortunately, the IRS makes available certain relief options that help one navigate through them, and one such option is the Offer in Compromise. It allows the facility for taxpayers to settle their debts for less than what they owe, but not all applications for the same get approved as the process is rigid and complex. Not every taxpayer is entitled to this program, but certain things can be done to strengthen your possibility of success. In this article, we look at who qualifies for an OIC; some tips on how to increase your chance of acceptance; and what one should do if their application gets denied.
Who Qualifies for an IRS Offer in Compromise?
An Offer in Compromise is not for everyone. The IRS will accept an offer only if it believes the taxpayer cannot pay the tax in full or if there is some doubt about the amount owed. You may qualify for an OIC if you meet one of the following conditions in general:
Doubt as to Collectibility:
You don’t have sufficient assets or income to pay the tax debt in full. Where there is doubt as to the taxpayer’s liability, there’s some question with respect to the amount of tax debt. This is relatively rare but can occur if the taxpayer feels there was an error in his assessment of tax.
Effective Tax Administration:
You may pay the full amount but doing so would create economic hardship or be inequitable because of exceptional circumstances—reliant upon serious illness.
The IRS will review in great detail your financial situation including income, expenses, and assets. Only a limited number of applications for OIC are approved; hence, careful preparation and adherence to the application process is very important.
Tips for Maximizing Your Application Approval
The following are some of the things that you need to do in order to maximize your chances of having the IRS accept your Offer in Compromise:
File Your Tax Returns:
File all unfiled tax returns before submission. The IRS doesn’t even consider an OIC without unfiled returns on file.
Accurately Report Your Income and Assets:
Show all sources of income; correctly identify all your assets. Any misapplication could mean denial.
Prove your financial hardship:
Provide as much proof as possible that, with full payment, it would cause great financial hardship. Supporting documents to income, expenses, debt, and assets shall be provided.
Engage the services of a professional tax consultant or former IRS agent:
Experienced in OIC to further enhance your possibilities of success. That third-party professional will be able to better prepare your application, advise on presenting your financial situation, and represent you in front of the IRS.
Pay the Application Fee and Initial Payment:
Along with your first payment, add the application fee while applying for OIC. It is done as an act of good faith; otherwise, it will result in the summarily rejection of your application.
A Former IRS Agent Can Help You Through an OIC Application
A former IRS agent can, therefore, help substantially in an OIC application. The inside knowledge from within the IRS will hence be helpful in advising on how to increase his or her chances of getting accepted. Here’s how they can help:
Expert Insight:
Having worked with the IRS, they know exactly what it looks for in OIC applications. They can help you avoid common pitfalls that lead to rejections.
Negotiation Skills:
He has enormous exposure to negotiations with the IRS because of his past experiences as an IRS agent. Therefore, he can be helpful in representing your case in the best possible way and increasing the chances of your case getting approved.
Filing for IRS Debt Forgiveness:
They are also going to advise whether or not you qualify for other debt relief options such as the IRS debt forgiveness program inclusive of options like Currently Not Collectible status and installment agreements.
Common Reasons for Offer in Compromise Rejections
Even then, an OIC may not be accepted for various reasons. In general, some of the very common reasons for rejection would be as follows:
Insufficient Documentation:
Inadequate documentation or proof of financial hardship alone can keep the revenues service from believing you, and your OIC will probably be refused.
Insufficient or Inaccurate Financial Information:
If you do not accurately declare your income and assets, this could be a potential reason for getting your offer rejected. It is important that all financial information provided is complete and accurate.
Ineligibility:
If you were found capable of making your debt either by an installment agreement or liquidation of assets, then the IRS will not accept your offer.
Alternatives if Your Offer in Compromise Is Rejected
If your OIC is denied, you shouldn’t freak out. That is not the end of the world; you have other alternative ways of settling your debt with the IRS:
Appeal the Rejection:
An appeal may be filed within 30 days from the date of the rejection letter by using Form 13711, “Request for Appeal of Offer in Compromise.” A hearing will be granted to allow additional information or to correct errors in your application.
IRS Installment Agreement:
If your OIC is denied, this is probably a set-up you want to make with an IRS installment agreement. You can pay your tax debt over time and may or may not save any money from the amount owed; you most likely just won’t face some pretty aggressive collection activity.
Other IRS Tax Debt Settlement Programs:
Other persons would be eligible for other settlement programs which include IRS tax audit reconsideration, where a second look at your case is given upon disputes against the conclusion reached by a prior audit.
How the IRS Debt Forgiveness Program Works
IRS debt forgiveness programs can give tax debt relief to people who can’t pay their back taxes. Sometimes, the IRS will forgive some of your debt if paying it would create a financial hardship for you. IRS debt forgiveness programs include:
Offer in Compromise:
This is a debt forgiveness program of the IRS by which one settles debt for less than owed.
Currently Not Collectible Status:
If you can show that satisfaction of the debt will cause you severe financial hardship, the IRS may grant your account Currently Not Collectible status. They will not attempt to actively collect for a period of time.
How to Track an Offer in Compromise Application
Following up on the status of your application after you have filed the application for an offer in compromise is very important. Here is how you will monitor the status of your application:
Check the Status of OIC on IRS Website:
Similarly, the status can be checked through an interactive IRS tool or by calling at OIC Unit.
Additional Information Requested from IRS:
The IRS may request further information or additional documentation at any time during this process. It is best provided as quickly as possible to avoid unnecessary delays in processing.
Work with a Former IRS Agent:
They can keep you current on the status of your case and even communicate with the IRS for you, smoothing out the whole process.
Conclusion
While an IRS Offer in Compromise is by no means a cinch to get, the right steps and pros can go a long way in really helping increase your likelihood of approval. Submit a thorough and complete application and full documentation of your financial hardship, and seek the help of a former IRS agent if possible. It is not yet the end, for there is still an IRS installment agreement or other IRS tax debt settlement programs available for you. By staying proactive and informed, you may avoid these ill effects altogether.
