Dealing with IRS tax debt can be stressful, especially if you’re unsure how to resolve it. But here’s the good news: You don’t have to pay the full amount owed. An Offer in Compromise (OIC) could be your ticket to a fresh start, allowing you to settle for less than the total tax liability.
In this post, we’ll walk you through what to expect when submitting an Offer in Compromise. From the timeline to the costs and IRS review process, we’ll cover the essential details to help you confidently navigate this option
What is an Offer in Compromise (OIC) and How to Settle IRS Tax Debt with an Offer in Compromise?
An Offer in Compromise is a tax relief option that lets you settle your IRS debt for less than what you owe. It’s designed for taxpayers who cannot pay their full tax debt due to financial hardship. The IRS evaluates your financial situation and determines if accepting a lower amount is in their best interest.
If your offer is accepted, the IRS will stop collection actions like wage garnishments or liens, and you’ll pay a reduced amount to settle your debt.
But here’s the catch: the IRS doesn’t accept just any offer. They’ll only agree to an Offer in Compromise if they believe the offered amount is the most they can reasonably collect from you.
1. How Long Does the Offer in Compromise Process Take?
The timeline for submitting an Offer in Compromise can be longer than expected, but it’s important to be patient. Here’s what you can expect:
Step 1: Submitting Your OIC
- First, you’ll need to complete IRS Form 656 (the official OIC application) and provide financial documentation (Form 433-A or 433-B) that gives the IRS a complete picture of your financial situation.
Step 2: IRS Review
- After submitting your offer, the IRS will review your application. The review process typically takes 6 to 9 months – yes, it can be slow. But don’t worry, this is normal. They need time to evaluate your financial records and ensure the offer is fair.
Step 3: Decision from the IRS
Once they complete the review, the IRS will either accept, reject, or counter your offer. If they accept it, you’ll receive a formal acceptance letter, and the settlement process will begin. If your offer is rejected, you’ll get a reason why and instructions on how to proceed.
2. What Are the Costs of an Offer in Compromise?
Yes, there are costs involved, but they’re typically manageable compared to the debt you’re settling.
Application Fee
- There’s a $205 application fee that you must pay when submitting your Offer in Compromise. If your income is below a certain threshold, you may qualify for a fee waiver, so don’t automatically assume you have to pay it.
Initial Payment
- When submitting your offer, you may also be required to make an initial payment toward your settlement. This payment can be made in one lump sum or through installments, depending on your situation.
Refunds?
Unfortunately, if your Offer in Compromise is rejected, the IRS does not refund your application fee or initial payment. However, if they accept your offer, these amounts will be applied toward your total settlement.
3. The IRS Review Process: What to Expect
The IRS will thoroughly review your offer to ensure that the amount you’re offering is reasonable based on your ability to pay. Here’s how they evaluate it:
Financial Disclosure
- The IRS will assess your income, expenses, and assets to determine if your offer is the most they can collect from you. Be sure to provide complete and accurate financial information, underreporting anything can lead to delays or rejection.
The IRS Decision
If the IRS believes your offer is in line with what they could collect, they’ll accept it. If not, they may either counter your offer or reject it entirely. But don’t be discouraged. If your offer is rejected, there’s an option to appeal.
4. What Happens If the Offer in Compromise Is Rejected?
It’s not the end of the road. If your offer is rejected, the IRS will provide a reason for the rejection and you’ll have options:
- Appeal the Decision: You can appeal the decision if you feel it’s unfair.
- Submit a New Offer: If you fix the issues with your initial offer, you can resubmit it. Make sure your financial details are accurate and that the offer is reasonable.
Rejection doesn’t mean giving up, it just means re-evaluating and adjusting your offer.
5. Mistakes to Avoid in the OIC Process
As you go through the process, it’s important to avoid common mistakes that can delay or jeopardize your application:
- Incomplete or Inaccurate Forms: Double-check your forms and financial disclosure. The IRS will reject your offer if your documentation is incomplete or inaccurate.
- Filing at the Wrong Time: Don’t wait until the IRS is about to seize your assets or garnish your wages to submit an OIC. Timing matters.
Assuming You’re Ineligible: Even if you think you don’t qualify, you may still be able to submit an OIC. It’s worth exploring with the help of a tax professional.
6. What to Do Next If You’re Considering an Offer in Compromise
The Offer in Compromise process can seem daunting, but with the right preparation and support, it’s manageable. Here’s your next step:
- Consult a Tax Professional: While it’s possible to apply for an OIC on your own, a tax professional can help you navigate the process more smoothly and increase your chances of success.
- Gather Financial Documentation: Be prepared to provide all necessary documentation about your income, expenses, and assets.
- Submit Your Offer: If you’re ready to proceed, submit your OIC application with all the required forms and information.
Stay Patient and Follow Up: After submission, be patient as the IRS reviews your offer. Follow up if needed and stay proactive in responding to any requests for additional information.
Take Control of Your IRS Debt with an Offer in Compromise
An Offer in Compromise is a real solution for taxpayers who cannot pay their full IRS tax debt. By understanding the process, timelines, costs, and potential outcomes, you can take control of your situation and resolve your debt for less than you owe.
Don’t let IRS tax debt control your life. If you’re ready to get started, book a free consultation with us to explore your options and submit your offer with confidence.
