In this write-up, we will be answering the most common questions and concerns of taxpayers about the IRS Offer in Compromise.
Offer in Compromise program: Scam or real?
It is real. But, some tax firms abuse the Offer in Compromise (OIC) program by reeling in people with deceptive promises and market themselves as being able to settle their tax debts for “pennies on the dollar”. The advertisers want people to believe that they have some government authority or power and promise to help in settling their tax debt for 90% less than they owe. These rip-off companies use this program as bait to get taxpayers to hire them. But the IRS has been inexplicably quiet about these tax firms.
These so called experts might prepare your Offer in Compromise forms but they will not prepare the important backup documentation nor negotiate with the IRS for you. The Offer in Compromise program is not for everyone! But these incompetent people can’t figure out about whether a person is eligible to apply for an OIC or not. They will just waste time and money of the taxpayers by luring them into the program.
Will the IRS keep my tax refunds if my Offer in Compromise gets accepted?
Yes, the IRS will keep refunds for the tax years prior to filing an offer in compromise and the year during which an OIC is approved.
What happens to tax lien when an Offer in Compromise is paid?
The IRS releases a tax lien that was filed against you when the entire Offer in Compromise payment terms is satisfied. Usually this will take two months but to get an immediate release of lien, you can submit payment through certified check and also include a request letter.
Can I prepare and submit an Offer in Compromise myself?
Filing a 1040 tax return and filing an Offer in Compromise is not the same thing. The vast majority of applications either gets rejected or returned as “unprocessable” by the IRS. Preparing an OIC is a lengthy and intimidating process, further, the IRS will challenge everything you say. Remember, this is the form where you have to provide all the details about your income, assets and expenses.
How much should I offer?
Naturally, taxpayers want to pay as little as possible to settle their debts. However, the amount is determined by the reasonable collection potential or RCP. The RCP is your magic number. Now your question is, “What number I need to put down in the OIC form 656?” There is no easy answer for this question. It is best to seek help of someone qualified in such matters to perform procedures for you to figure out what the minimum amount is that the IRS will accept and they can guide you about the steps to take to minimize the amount to be paid.
What happens after the IRS accepts the offer?
One must remain in compliance with tax filing and payment for a period of five years from the date the Offer is accepted or until it is paid in full, whichever is longer. Failure to do so will result in OIC being declared as default and all your tax debts will come back.
Can a business file an Offer in Compromise on payroll taxes?
Usually, an individual taxpayer will seek relief under Offer in Compromise program but businesses who owe back payroll taxes can also qualify for this program. But the process is lot more difficult and to strike a deal, they should get professional help from a tax practitioner.
Can trust fund recover penalties be settled through an Offer in Compromise?
Yes, you can file an Offer in Compromise to settle your back trust fund taxes that you owe to the Internal Revenue Service.