Struggling to Cover Your Tax Liabilities? Potential for Negotiation with the Internal Revenue Service
Tax Debt Settlement: The Inside Scoop
Trying to pay off a hefty tax bill? The Internal Revenue Service (IRS) offers a lifeline for eligible taxpayers in the form of an Offer in Compromise (OIC). Here's what you need to know about this remarkable agreement:
The Nitty-Gritty of OIC
To qualify for an OIC, the taxpayer must show that settling the tax debt for less than the full amount is the IRS' best shot at collecting within a reasonable timespan. But, not everyone gets approved. In 2024, the IRS accepted only 21% of the nearly 33,600 OIC applications[1]. We talked to Enrolled Agent Kesha Dawson Harris to break down the process and demystify the OIC.
How Does the IRS Set a Taxpayer's Payment Plan?
The OIC calculator gives you an idea of the questions the IRS will pose. The process is extensive, requiring disclosure of all income, household expenses, and assets. Many people don't realize they're essentially inviting the IRS to take a close look at their finances. Unlike popular TV shows like "Let's Make a Deal," the OIC is not a simple negotiation. It's a carefully calculated formula, and the IRS uses national living cost standards[2].
How Long Does the Process Take, and When Do Payments Begin?
From submission to response, expect a wait of eight to ten months. If the offer is rejected, it may take longer. However, the IRS has up to two years to respond[2]. Depending on the proposed offer, you may make payments during this period, or you can hold off until the IRS accepts or denies the offer. In either case, the collection process is frozen[2].
Who Qualifies for an Offer in Compromise?
The typical taxpayer qualifying for an OIC is in their 30s or 40s. They may have faced unexpected financial challenges like job loss, divorce, or COVID-related setbacks. One common scenario is a taxpayer left with significant IRS debt following the death of a spouse[3].
What Happens if the Offer is Rejected?
If the offer is denied, it's time to head to appeals. In appeal hearings, you can present your case more effectively, improving your chances[3]. If appeals don't work, the IRS might suggest alternative programs that better suit your circumstances[3].
Remember, the OIC is just one of many IRS tools to assist taxpayers. If you don't qualify for an OIC, don't worry – other options are available. Connect with a tax professional to find the best solution for your situation[4].
Enrichment Data:
Overall:
The IRS determines eligibility and the amount for an Offer in Compromise (OIC) by assessing a taxpayer's financial situation, including income, expenses, assets, and compliance with tax obligations. Candidates must meet specific criteria, including demonstrating financial hardship, disputing the accuracy of the tax assessment, being current with tax obligations, and not being involved in open bankruptcy proceedings or IRS employment or under investigation in a criminal tax case. The IRS calculates the Reasonable Collection Potential (RCP) to determine the offer amount based on income, assets, allowable living expenses, and collection period. The offer must match or exceed the RCP, and payments can be made either within five months or over a two-year period.
In the realm of personal-finance, an Offer in Compromise (OIC) is a tool provided by the Internal Revenue Service (IRS) for eligible taxpayers to settle their tax debts. This financial agreement requires demonstrating that settling the debt for less than the full amount is the IRS' best chance to collect within a reasonable timespan, much like a token of goodwill towards achieving financial reconciliation (ido). However, it's important to note that not everyone is guaranteed approval for an OIC, as evidenced by the 21% acceptance rate in 2024 for nearly 33,600 applications (OIC).
