Owing taxes can strain your financial situation, particularly if the total amount owed exceeds what you can afford to pay. The Offer in Compromise (OIC) program offered by the IRS could provide relief for your tax obligations. This program allows taxpayers to settle their debts for less than what they owe, based on their ability to pay, income, expenses, and asset equity. Here’s a closer look at who can benefit from this program, illustrated with scenarios that might hit close to home.

A Lifeline for Taxpayers

Imagine a small business owner in the construction industry where an economic downturn hit their business hard, leading to significant tax debts that they couldn’t pay. Or consider someone who faced unexpected medical bills that wiped out their savings, leaving them unable to settle their tax liabilities. The OIC program is designed for taxpayers like these, who find themselves unable to clear their tax debts without causing financial hardship.

Eligibility: Is the OIC Right for You?

Eligibility depends on several criteria:

• All required tax returns must be filed.
• No open bankruptcy proceedings.
• Compliance with tax deposit requirements for employers.

Before applying, individuals can use the IRS’s Pre-Qualifier Tool to assess their eligibility. This tool helps determine whether the OIC is a feasible option based on their financial situation.

Application Process: A Step-by-Step Guide

To apply for an OIC, taxpayers must submit:

• Form 433-A (OIC) for individuals or 433-B (OIC) for businesses, detailing their financial situation.
• Form 656, proposing how much they can pay.
• An application fee and an initial payment, both of which are non-refundable.

Taxpayers choose between two payment options: Lump Sum Cash (paying 20% upfront and the rest in five or fewer payments) or Periodic Payment (initial payment followed by monthly installments). For instance, if someone opts for the Lump Sum Cash option, they’ll need to carefully calculate the offer to ensure it’s both affordable for them and acceptable to the IRS.

After Submission: What to Expect

Upon submitting an OIC, the IRS may take several actions, including filing a tax lien or suspending other collection activities. The IRS aims to make a determination within two years, during which the taxpayer must comply with the payment terms of their offer. If accepted, it’s crucial to adhere to all terms, such as filing future tax returns on time and settling the agreed amount.

Conclusion

The OIC program offers hope for those who find themselves in challenging financial situations. By understanding the eligibility requirements, application process, and what to expect after submitting an offer, taxpayers can make informed decisions about whether to pursue an OIC.

If you’re considering an Offer in Compromise, the Business Law Group can help navigate the process, from evaluating your eligibility to submitting your application. Our goal is to provide the support and guidance you need to achieve a positive outcome.

This overview is intended for informational purposes only and does not constitute legal or financial advice. Every taxpayer’s situation is unique, and outcomes can vary. The Business Law Group cannot be held responsible for any decisions made based on this information. We recommend seeking personalized advice from a tax professional or attorney.