An Offer in Compromise (OIC) is one of the tax settlement methods offered by the IRS to its taxpayers, to help them settle their taxes for less than what they actually owe. The IRS, however, accepts an OIC only when it is fully convinced that the defaulter cannot pay the due taxes in full, not even through a relaxed deferred tax payment plan. Understanding OIC and its intricacies is not easy for a common man, and therefore, most taxpayers have several questions to ask. In this post, we discuss some of the most frequently asked questions and their answers. Let’s take a look..
Q.1 On what grounds can I request an OIC?
An OIC can be requested on three grounds.
- Doubt as to liability
- Doubt as to collectibility
- Effective Tax Administration
Q2. What is the difference between Doubt to Liability and Doubt to Collectibility?
If a taxpayer does not agree to the amount of tax liability as claimed by the IRS then they can request an OIC under Doubt to Liability. For this, you need to complete Form-656 L.
In case the taxpayer agrees to the amount of tax liability due, but is unable to pay the amount, they need to request OIC on Doubt to Collectibility ground. For this, you need to complete Form-656 B.
Q3. Do I need to pay a fee when applying for an OIC? Can the fee be waived?
Yes, you need to pay a non-refundable fee of $186 with Form 656. The only circumstances under which this fee can be waived off are:
- If the OIC is requested based on Doubt as to Liability.
- If the applicant qualifies for low income exception.
Q4. What is low income exception?
Low income exception applies to taxpayers with monthly income less than or equal to 250 percent of the poverty guidelines. Taxpayers who qualify low income certification get various exemptions from IRS. For example: they are not supposed to pay the fee when applying for OIC, nor do they need to pay the monthly installments while their offer is under evaluation.
Q5. What if I make an offer that is not high enough or I make a calculation mistake?
Do not worry if you made a calculation mistake or did not offer an amount equal to what the IRS expected. The IRS gives taxpayers a second chance to make changes to the OIC. In case you do not make a change, your request will automatically stand cancelled. The only thing you need to worry about is intentionally sending false information to the IRS as this may lead to you being subjected to criminal or civil penalties.
Q6. Can I send one OIC request form both for personal and business taxes?
If you are running a sole proprietorship business that is linked to your SSN, you can send one OIC request both for personal and business taxes. If, however, you are running a business that is a partnership, LLC or corporation, you need to complete two different forms for making the OIC request.
Q7. My offer was rejected, what do I do now?
If your offer is rejected, but you disagree with it, you can appeal within 30 days from the date of rejection. The IRS will review your case and send you an answer accordingly. In case you have no reason to disagree with the rejection, it is advisable to pay your tax dues as soon as possible, to avoid paying any additional interest or penalty.
If you need more information on tax-related matters or need to resolve any IRS debt problems, please contact us. You can fill out our Free Tax Analysis form or feel free to call us at (972) 734-1171 for a free consultation with Attorney Nick Nemeth.