There is more than one settlement option to resolve a tax debt with the IRS. While many taxpayers manage to pay the full amount they owe, that is not an option for everyone. Individuals with sudden and unexpected financial stress could find it impossible to meet their basic needs while also paying what they owe to the IRS. An offer in compromise (sometimes known as an OIC) is one possible answer to these tax collection efforts.
If you owe a substantial tax debt to the IRS and are unable to pay, a value-focused tax lawyer might be able to help, even if you currently lack the ability to pay in full. Let a Rockville offer in compromise lawyer advise you of how this can happen.
An offer in compromise is a form of settlement agreement between a taxpayer and the IRS. This type of settlement is different than standard repayment plans, as it involves the taxpayer offering less than their full balance due. Taxpayers with a net worth over their IRS balance due are not good candidates for an OIC. If accepted, an offer in compromise could allow a taxpayer to erase the remaining balance of their IRS debt.
An offer in compromise can take different forms. Taxpayers could offer a single, lump-sum payment to resolve their tax debt. Alternatively, they could offer periodic payments until the offer is fulfilled. For a lump sum payment, taxpayers must remit 20% of what they owe when submitting their offer. If it is accepted, the full amount of the offer in compromise must be paid in five payments or fewer within five months. For a periodic payment, taxpayers must begin making the monthly offered payments while the IRS considers the offer. If they accept, they must keep making payments until the offer amount is paid in full within six to 24 months of the offer filing, at which point the government will release any liens they have on the taxpayer’s assets.
The IRS is prohibited from levying a taxpayer while an OIC or installment agreement is pending per Internal Revenue Code § 6331(k). However, the IRS collection statute of limitations is suspended during the period the IRS is not authorized to levy the taxpayer, per Internal Revenue Code § 6331(i)(5).
If a taxpayer’s offer is not accepted, they are not refunded any of the fees and tax payments they have made in anticipation of an acceptance. That money is instead applied to the balance.
For many individuals, an accepted offer in compromise can represent a burden off their shoulders. Historically, the IRS only accepts approximately one-third of the offers that they receive. It could be possible to increase the odds of success with the help of an offer in compromise attorney in Rockville.
Not all taxpayers have the option to make an offer in compromise, and a Rockville attorney could help someone review their eligibility requirements. First and foremost, an offer in compromise is only available for taxpayers who have filed all their tax returns up to this point and paid the amount that was due for the current year. Applicants cannot be in active bankruptcy and they must have a valid extension in place if they are seeking an offer in compromise for the current year.
An offer in compromise is also a possibility for businesses who owe a tax debt. When employers seek this type of relief, they must prove that they have made tax deposits for the current year (including the trust fund withholdings), in addition to the previous two quarters, before they can apply for an offer in compromise.
An offer in compromise could be a great opportunity if you owe a substantial tax debt to the IRS but cannot afford to pay it off. It is important to confirm that you qualify for this option before submitting a proposal. Let a Rockville offer in compromise lawyer advise you on your best path forward.