If you are drowning in IRS tax debt, remember that there are other options available to you in order for you to have a way out of your IRS problems. Many people simply let their tax bills pile up over a long period without considering all of the options they have when they efile. One option, which many don’t consider, is an Offer in Compromise. An Offer in Compromise allows you to pay the IRS less than you owe in outstanding tax debt.
What is an Offer in Compromise (OIC)
An Offer in Compromise (OIC) is a widely-overlooked way to overcome tax debt with the IRS. When you have tax debt, an offer in compromise is when you decide to settle with the IRS at a lower amount than what you would normally pay. This isn’t much different than settling with consumer finance companies whom you owe money to directly after the debt goes into collections. The IRS is willing to accept a lesser amount if they know that they will be getting paid from an OIC.
Changes Under Fresh Start Initiative
The IRS decided to change the program with their fresh start initiative. It determined how expected income is to be calculated, allowing taxpayers to calculate their lump sum amount to consider future income. The Fresh Start Initiative includes several different reforms, especially for those struggling with tax liens and gives taxpayers more time to pay back taxes that they might owe. As part of the fresh start initiative, taxpayers are required to file a 656-B booklet for ensuring their offer in compromise is accepted by the IRS.
The circumstances which qualify for an OIC are fairly limited. The IRS needs to doubt that you will be able to pay the full amount in the future, or you must demonstrate an economic hardship that would be caused by paying the tax debt or that paying the debt is unfair. The idea an OIC is based on the “reasonable collection potential” of your debt.
Formal Process Required to Be Effective
The OIC process is a very complex one. In order to be able to submit an OIC, you need to work with a tax attorney whom can be of assistance to you. You can easily make a mistake along the process that will put your agreement at risk. Tax attorneys are also able to negotiate with the IRS so you can pay a lower amount as a result of your offer in compromise. You need to have a very solid case for your Offer in Compromise in order for it to be effective.
Small Business Owners Prone to Tax Debt
Sadly, most often it’s small business owners whom can find themselves in a lot of tax debt. Business owners have a quarterly and yearly reporting obligation to the IRS, and they also have to deal with many different situations which often result in higher tax obligations compared to a W2 employee with a regular paycheck. It also helps to save money on your business in order to ensure that you are able to pay your taxes on time.
Other Requirements to Remember for an OIC
As a general rule, you need to be current in filing your taxes. You also must not be in any kind of bankruptcy proceedings. If you owe any estimated tax payments to the IRS, you must also have paid your estimated tax payments to date. Business owners are also required to have submitted federal tax deposits for each of their employees.
OIC Pre-Qualifier Tool Provided by IRS
One easy tool which you can use to determine the likelihood of obtaining an OIC is the IRS’s OIC Pre-Qualifier tool. This is a questionnaire which will take you through the circumstances that can qualify you for an OIC.
The IRS is an organization which is capable of doing a lot of damage to your life and your future. Stopping the damage potential through an OIC is one of the easiest ways to take your life back from tax stress and tax problems.