What is an Offer in Compromise?
An Offer in Compromise (OIC) allows you to settle your IRS tax debt for less than the amount you owe. This is a great option for you if you are unable to pay the full amount of your tax debt or if paying the total is a financial hardship. Attorney Sammy Kim can help you decide whether an Offer in Compromise is the right solution in your specific situation and help you successfully negotiate an Offer in Compromise.
How does the IRS decide whether an Offer in Compromise is accepted?
The IRS typically approves an Offer in Compromise when the amount of money you offer to settle your tax debt is the most the IRS believes it can collect from you in a reasonable period of time or within the collection period.
The IRS evaluates an Offer in Compromise proposed by a taxpayer based on:
- Their income
- Their future income potential
- Their ability to pay
- Their expenses
- The equity they have in their assets, such as their home.
Am I eligible for an Offer in Compromise?
You are eligible to apply for an Offer in Compromise if 1) you have filed all required tax returns and made all required estimated payments; 2) you aren’t involved in an open bankruptcy proceeding; 3) you have a valid extension for a current year return, if you’re applying for the current year; and/or 4) you are an employer and you paid tax deposits for the current and past two quarters before applying.
How likely is my Offer In Compromise to be accepted?
Whether your offer will be accepted depends on many factors, including how reasonable it is in relation to your ability to pay. It takes a lot of focus, knowledge, hard work and time to negotiate an offer and have it accepted by the IRS.
Tax attorney Sammy Kim has helped many people negotiate an Offer in Compromise, and the vast majority of those offers have been accepted. That means that taxpayers who hired Sammy Kim were able to settle their tax debt for less money than they owed. Some Offers may be strategically withdrawn or other collection alternatives may be opted in the best interest of the clients.
How do I apply for an Offer In Compromise?
Applying for an Offer in Compromise is complex and involves submitting highly detailed information about your assets, income, and expenses. To apply, you must complete Form 656 and Form 433-A (OIC) Collection Information Statement for Wage Earners and Self-Employed Individuals (and/or 433-B (OIC) Collection Information Statement for Business). Accuracy is very important in your application.
You will need to include the value of all of your accounts, including bank accounts, brokerage accounts, investment accounts, and retirement accounts, business ownership interest, in addition to all other property you own, including collectible items, cryptocurrency, etc.
How can a tax lawyer help me negotiate an Offer In Compromise?
As your tax lawyer, I will take aggressive action to advocate the recommendation for acceptance of your Offer in Compromise on your behalf. First, I will collect all of your financial information. Then, based on my experience, I will help you determine whether an Offer in Compromise is right for your situation.
If we decide to move forward, I will apply all of my knowledge of the IRS rules and complete all IRS forms to apply for the Offer in Compromise. I will make sure the IRS is advised of your extenuating circumstances which prevented you from staying in compliance in the past.
I will prepare a full set of documents with a clear argument laying out the case for why the IRS should accept your Offer in Compromise. When the argument is provided in such an organized and complete way, it improves the chances that your offer will be recommended for acceptance.
How long does it take for an Offer In Compromise to be accepted by the IRS?
Negotiating with the IRS can often take around six months to a year, and sometimes longer than that. For an Offer in Compromise, if the IRS doesn’t reject or return your offer, and if you don’t withdraw it within two years, the offer is considered accepted. However, before filing an Offer in Compromise you must speak with a competent tax lawyer who can advise you on the remaining collection statute and the bankruptcy rules, so you are not extending the expiring statute or limiting yourself from other resolution options.
When do I have to pay the IRS if I am applying for an Offer In Compromise?
When you apply for your Offer in Compromise, you are required to make a deposit. That deposit depends on your offer and on which payment option you select.
A lump sum cash payment means that you must pay 20% of the total offer amount when you apply. If your offer is accepted, you are required to pay any remaining balance in five payments or fewer.
A periodic payment means that you choose to make an initial payment of your proposed installment amount when you apply and continue to pay in monthly installments while your offer is pending. If your offer is accepted, you would continue to pay monthly until the full, agreed offer amount has been paid.
If your offer is rejected, returned, or withdrawn, the IRS will apply any deposits to paying toward your back taxes.
What happens with my tax debt while I am waiting?
Submitting an offer to the IRS extends the time in which the IRS must collect the tax debt by the pendency of your offer and some more months. That means that, while you wait to see if your offer is accepted, you do not have to make any payments to the IRS on your back taxes, beyond your initial deposit (unless you’ve chosen to make periodic payments, as noted above).
However, you will have to pay all current taxes when they are due. That includes quarterly estimated income tax payments and federal payroll tax deposits. Also, interest and penalties will continue to accrue on your back tax debt.
Be aware that this is a critical time for ensuring you are compliant and make all payments on time. If you don’t, the IRS will automatically reject your Offer in Compromise and you will have no right to an appeal. Tax attorney Sammy Kim is here to support clients in resolving their tax debt and remaining compliant in the future, so you don’t lose any more sleep over your tax payments.
Any refunds the IRS owes you will not be paid from while your offer is pending through the date on which the IRS accepts . After the IRS accepts the Offer in Compromise, you will no longer have a right to dispute the accuracy of your tax amount for any years covered by the Offer in Compromise. In other words, you cannot file an amended return for those years or a claim for refunds. That is to enforce the regulation as a contract term.
What happens if I land with more IRS tax debt after I have accepted Offer In Compromise?
Essentially, if you let yourself fall into debt with the IRS again, you’ll lose the offer. An accepted offer requires you to file and pay all taxes in a timely fashion for five years from the date when the offer was accepted.
If you don’t meet this obligation, the IRS may take an immediate collection action against you to collect the original amount of your taxes due, plus interest and penalties, minus any payments you have already made under the Offer in Compromise.
Your accepted Offer in Compromise can be taken away by the IRS if they determine that you have made false statements about or hidden assets or if any other inaccurate material fact is found.
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