What is an Offer In Compromise?
If you owe back taxes, the IRS has a program that could allow you to settle for pennies on the dollar. This is called an Offer In Compromise (OIC).
How does it work?
Not everyone qualifies for an OIC. The IRS compromises taxes only when there is “reasonable doubt”. Doubt either that you actually may not owe the tax (Doubt as to Liability), or doubt that you will be ever able to pay off the tax debt (Doubt as to Collectibility). A third method is to prove that paying the tax will create an enormous economic hardship and would be “unfair”, but don’t expect the IRS to be very sympathetic. They’re not.
Most OICs are based on Doubt as to Collectibility. For these, you have to offer the IRS more than they could otherwise collect using all of their enforced collection tactics. This may be paid up front as a “deposit” with the offer, paid immediately upon the IRS’ acceptance of the offer, or over a short period of time, with interest.
When you file an OIC, collection activity is usually called off while the IRS negotiates with you or your representative.
Sounds Good. What are the drawbacks?
First, the statute of limitations the IRS has to collect the tax is automatically extended by one year plus the amount of time the OIC takes to be negotiated. So if the offer isn’t accepted, the IRS has an additional year to make you miserable.
Second, if the IRS thinks you are using an OIC merely as a delaying tactic, they don’t have to call off the dogs and halt enforced collection activity.
Third, you have to file all returns and pay all taxes as due for the next five years. If you don’t, then all those compromised taxes are “un-forgiven”, along with compounded interest and penalties.
Fourth, you are not eligible for an OIC if you are currently involved in an open bankruptcy proceeding. Incidentally, many bankruptcy attorneys won’t tell you which taxes can’t be discharged, because they don’t know.
Finally, putting together an OIC, waiting for the IRS’ response, and negotiating takes time.
Can I do it myself?
Certainly. Just like you can prepare your own taxes or change the oil in your car yourself. The question you should really ask is “Do I want to do this myself?” Many do-it-yourselfers pay more than they have to because of poor negotiating skills or lack of experience. Others suffer months of frustration submitting offers that are continually rejected because they weren’t presented properly. Remember that each time an offer is submitted to the IRS, the time the IRS can harass you is extended by another year, so you can see the danger in making a mistake.
Could you benefit from an expert who has the experience, contacts, and correct tools already in place?
We recommend you hire a professional representative who can help you avoid the pitfalls of this process.
Even if you have already started negotiations, call Blue Ridge Tax Advisors, Inc. today for an assessment of your situation.
What if I don’t qualify for an OIC?
Don’t lose hope. There are other ways to negotiate with the IRS, and as an Enrolled Agent, I know them all. Getting behind in your taxes is a stressful situation, but it doesn’t have to be a desperate one. With some professional help from Blue Ridge Tax Advisors, you can get back on an even keel and start enjoying life the way you did before the IRS.