An IRS Offer in Compromise (OIC) is a way to settle a tax debt for less than you actually owe, and can be a great solution to a tax problem.
At first glance, an OIC is based on your ability to pay an amount that represents the most the IRS could expect to collect within a reasonable amount of time. If you have assets that are sufficient enough to pay the IRS, they will not accept an OIC. They would rather see you liquidate the assets and use the money to pay them. In addition, if you have enough income streams (wages, self-employment income, etc.) to pay your debts over a reasonable period of time, an OIC will not be accepted. The IRS would rather enter you into a payment plan and get paid in full rather than accept less if you have the ability to make payments over time. The two items above are combined (your total assets that can be sold plus your ability to pay over time) to determine the total amount that they could squeeze out of you before they would consider accepting less.
Seeking the help of a high quality tax professional is imperative if you are thinking about an offer in compromise. If you don’t quality, it can be a disaster. When you apply for an offer in compromise, you must inform the IRS about everything regarding your finances; all the assets, bank accounts, retirement accounts, houses, boats, trailers, etc., and your income streams from wages, investments, side jobs, etc. If you end up not qualifying for an OIC, and the IRS places a lien on your belongings, the IRS now knows exactly where everything is at and how to take it.
So what should you do next?
If you are considering an OIC, we can’t stress enough how important it is to use a tax professional.
Take these next steps to find out more: