If you’re looking at your tax bill and wondering how you’re going to pay it, you’re not the only one.
Every year, thousands of people across the country suffer financial setbacks. Perhaps you lost your job, a once-thriving business failed, or you were left with high medical bills your insurance didn’t cover. The result is a huge tax debt that you can’t pay in full.
What can you do?
Fortunately, those who want to pay their taxes but can’t afford to do it in a lump sum have potential solutions. One of them is the Offer in Compromise Program (OIC), a tax settlement agreement with the IRS that lets you settle your outstanding tax liability, often for less than the full amount and get a fresh start.
Offer in Compromise- How It Works
As a taxpayer, you can use an IRS offer in compromise to settle federal taxes, accrued interest, and penalties. But be warned: seeking tax relief through an OIC is a privilege, not a right. This is why you should submit your offer with help from an experienced New Jersey tax attorney.
Your OIC application package must include Form 656, Offer in Compromise, along with the application fee and 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, whichever is applicable. If you and your spouse owe taxes jointly and one or both of you have a separate tax obligation(s), you will each need to send in a separate Form 656.
Sounds complicated? It can be, which is another reason why working with a tax lawyer is the way to go.
Can anyone qualify for an Offer in Compromise?
Here’s the catch: not everyone qualifies for an OIC.
This may come as a surprise, given all of those ‘instant tax relief’ ads that are especially prevalent after tax time. You will also come across tax resolution companies and even law firms that will file an OIC for you, knowing full well that it’s not likely to be accepted.
At Paladini Law, we believe in complete transparency. If you appear to pre-qualify using our OIC Eligibility Calculator, we will present the offer to the IRS that reflects your financial situation. If you don’t, there may be other IRS debt relief options available to you, such as a payment plan, innocent spouse relief, a tax penalty abatement, or tax penalty waiving.
What are the qualifications for an OIC?
The IRS will accept an offer in compromise under one of the three conditions:
- Doubt as to collectibility: You can show that the amount you’re offering is the most that the IRS can hope to get based on your total assets and monthly income, and you’re not likely to increase your future income or acquire any more assets within a reasonable amount of time.
- Doubt as to liability: There is a legitimate doubt that you owe a certain part of the tax obligation. Please note that If you’ve already challenged the amount owed in tax court or another court, there is no doubt as to liability.
- Effective tax administration: You don’t dispute the amount of tax owed, and even have the money, but you have an ‘extraordinary reason’ for not paying in full. The only accepted reasons are 1) doing so would cause severe financial hardship for you or 2) there are extraordinary circumstances compelling public policy or equity.
In addition, you must have filed all of your tax returns, be current on your estimated tax payments if you are self-employed, and not be in an open bankruptcy proceeding.
How much will the IRS settle for?
That depends on your grounds for making an OIC.
- If there is doubt as to collectibility, the IRS will look at your reasonable collection potential, which refers to how much it could reasonably hope to collect from you before the Collection Statute Expiration Date. If your offer amount is equal to or more than that total, it is more likely to be accepted.
- If there is doubt as to your liability, the IRS may accept an amount equal to the correct amount of tax you owe.
- In claims involving effective tax administration, be aware that these are very rarely accepted. We will give you an honest opinion on whether this is an option for you.
What if your OIC is rejected?
The reality is that relatively few OICs are accepted. If your offer is returned for reasons like an open bankruptcy or non-compliance with tax filing and payment after submitting the offer, there is no option for reconsideration, and you will have to explore options like an installment agreement, which lets you make monthly payments.
If you believe the IRS rejected the offer in error, you can request a reconsideration by calling them and making your objection within 30 days from the date of the return letter. However, there’s no guarantee your objection will succeed. This is why, at Paladini Law, we carefully review your likelihood of acceptance before making the offer to the IRS.
Are You Thinking About Making an Offer in Compromise?
At Paladini Law, we believe that you should never face complex tax issues alone. We understand what terms are most likely to be accepted by the IRS and are ready to help you present an OIC that complies with IRS regulations, has affordable payment options and achieves your goal of putting an overwhelming tax debt behind you. To speak to Attorney Brad Paladini about your tax situation, please contact us.