What You Need to Learn About Offer in Compromise

The ultimate purpose of an Offer in Compromise or an OIC, is the settlement and eradication your tax debt. This is an arrangement where both parties, composed of you as the taxpayer and the IRS, arrive at a mutually beneficial agreement.

Generally, the IRS entertains applications for OIC so that unpaid debts can be settled at a lower amount. A requirement of this payment scheme is your ability to prove that the full amount can’t be collected from you anymore. In the OIC, you will declare the amount that you feel you can afford to pay and this should be a reasonable one. This should be directly proportional to the likelihood that the full amount owed can be collected in the future.

If you would like to apply for an Offer in Compromise, it is a requisite that you have filed all of your tax returns for the applicable years you wish to compromise on for the debt. The government may have kept records of your dues but an OIC application will not be accepted if you can’t show your official tax returns. You will also be required to state the earnings that you could have earned during those years. Filing all of your tax returns also ensures that you will not be imprisoned for failing to do so. However, the possibility of being imprisoned as a result of tax issues is still a present in some instances.

While many people think that the Offer in Compromise has a great deal to do with how much you actually owe the IRS, they are mistaken. A greater factor is how much the IRS believes they will be able to collect from you. The central focus of your OIC is this belief and understanding. Taxpayers who are submitting an OIC, need to prove or otherwise demonstrate to the IRS that they will not be able to provide more money than what is offered in the said application. When done accurately, the likelihood that the OIC will be accepted is greatly increased.

While you are waiting for the decision on your OIC, the IRS will be attempting to collect the money from you. To collect your tax dues, they will enforce wage garnishments, tax liens or levies. Fortunately, you have the option to appeal to any of these collection methods by going through a process called the Collection Due Process Appeal. During the actual hearing, you can utilize an installment agreement and payment plan or your OIC. Both of these are substitutes to the collection methods that the IRS will be implementing.

To conclude, remember that tax debts will be settled eventually. Even if the IRS deems that you are capable of paying the full amount, if you can adequately demonstrate otherwise, you will still be able to put an end to these tax problems. As long as the IRS believes that tax settlement lowers overhead costs, it would agree to arrange one because such is important in keeping tax administration effective.