Offer in Compromise

Frequently Asked Questions

• What is an Offer in Compromise (OIC)?
  • An offer in compromise (OIC) is an agreement between the taxpayer and the IRS.  The OIC is a way to resolve the taxpayer’s tax debt for less than the full amount owed to the Internal Revenue Service.
  • An offer in compromise will not be accepted by the IRS if the Internal Revenue Service believes that the tax debt can be paid in full in a lump sum or through a payment agreement.
  • The IRS will accept a taxpayer’s OIC if the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP).
  • The RCP is how the Internal Revenue Service measures a taxpayer’s ability to pay.  The IRS will review a taxpayer’s assets, including real property, automobiles, bank accounts, etc. to determine whether a taxpayer can pay the tax liability in full. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenditures.
• Why would the IRS agree to accept less money than it is owed?
  The IRS would of course love to receive the full amount of money owed to it; however, the Internal Revenue Service is aware that in some cases it needs to be more flexible and understanding of taxpayers’ current financial hardships. The IRS established the Offer in Compromise Program to help taxpayers who may have difficulty in paying the full amount of their tax debt. The goal of an Offer in Compromise (OIC) is to resolve the tax indebtedness in such a way that in the federal government and the taxpayer’s best interests.
  
  The IRS will consider the following reasons for an Offer in Compromise (OIC):
  1. Doubt as to Liability: This reason involves a taxpayer who can demonstrate that it is uncertain whether the amount of money the IRS claims is owed is accurate.
  2. Doubt as to Collectibility: This reason involves a taxpayer who can show that, based upon the taxpayer’s assets and income, he or she cannot afford to pay the IRS the full amount of the tax debt within a reasonable period of time.
  3. Effective Tax Administration: In very limited cases, the IRS may allow a taxpayer to pay less if the taxpayer can show that it would be unfair to require him or her to pay the whole amount, even if the taxpayer could pay the full amount.
     
     
• What are the requirements for an Offer in Compromise?
  In order for an offer in compromise to be considered by the IRS, specific requirements must be satisfied:
  1. The taxpayer cannot be a debtor in a current bankruptcy proceeding
  2. The taxpayer must submit a $150 application fee or a signed Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment
  3. The taxpayer must submit one of the following payments with Form 656, Offer in Compromise application:
     a.    Lump Sum Offer:  The taxpayer must include twenty (20%) percent of the lump sum offer
     with Form 656.
     b.    Periodic Payment Offer: The taxpayer must include the first installment with Form 656.
     
     
• What forms are necessary to complete an OIC?
  • Form 656-B, Offer in Compromise Booklet contains all of the necessary information, including worksheets, to file an offer in compromise.
  • Taxpayers must use Form 656, Offer in Compromise or Form 656-L, Offer in Compromise (Doubt as to Liability), when submitting an offer in compromise (OIC).
  • A taxpayer should use Form 656 when there is doubt that the tax liability could be collected in full through a lump sum or an installment agreement.  A taxpayer should complete Form 656-L when the he or she believes that the tax liability is incorrect.
  • A taxpayer cannot file both Form 656 and Form 656-L concurrently.
  • In addition to Form 656, Offer in Compromise, a taxpayer must also submit Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B, Collection Information Statement for Businesses.
  • If a taxpayer submits Form 656-L, Offer in Compromise (Doubt as to Liability), then the taxpayer is not required to submit either Form 433-A or Form 433-B.
    
    
• What happens if I do not meet all of the terms of my accepted OIC?
  • The IRS may consider you in default of the OIC. 
  • The IRS may reinstate your entire tax liability. 
  • The IRS may file a lawsuit in Tax Court to collect the entire unpaid balance of the offer or to collect an amount equal to the original amount of the tax liability as liquidated damages.
    
    
• What happens if I do not file my tax return or pay my taxes next year?
  You will be in default of your OIC.  An Offer in Compromise requires that you file and pay your future tax liability for a period of five (5) years from the date of acceptance of the OIC, or until the offered amount is paid in full, whichever is longer. Compliance is the timely filing and paying of all required tax returns and taxes.
  
  
• How much interest am I going to pay if my OIC is accepted?
  Interest will not accrue on a taxpayer’s accepted OIC amount from the date of acceptance until the OIC is satisfied; however, please be aware that interest and penalties will continue to accrue on the unpaid tax liability while your OIC is under consideration from the IRS.
  

• Is a federal tax lien released when an OIC is accepted?
  The IRS will generally only release a Notice of Federal Tax Lien when all of the OIC payment terms are satisfied; however, for an immediate release of a federal tax lien, a taxpayer can submit payment using a certified check and include a request letter.
  
  
• What happens if the IRS does not accept my Offer in Compromise?
  The IRS does not generally accept an OIC on the first submission.  Once the IRS determines that it cannot accept an OIC, the taxpayer will be advised of the reasons behind the decision.  The taxpayer is given an opportunity to submit additional information that might cause the IRS to reconsider its decision; however, no opportunity will exist if the taxpayer has the ability to satisfy the tax liability in full and has failed to specify special circumstances.
  
• How do I get started?
  You can contact us toll free at (877) 505-9455, or by completing our FREE CASE EVALUATION. National Tax Firm offers a free, confidential consultation to assess your needs and recommend a specific course of action.

Call today to schedule your free consultation at (877) 505-9455.