Navigating IRS tax debt can be overwhelming, especially when your financial situation makes it impossible to pay the full amount owed. An experienced IRS tax lawyer at The Law Offices of Nick Nemeth can help you explore legal options for relief, including the IRS Offer in Compromise (OIC) program. This settlement tool allows qualifying taxpayers to resolve their tax liabilities for less than the full amount, when approached correctly. In this blog, we’ll explore what an Offer in Compromise is, how it works, and why seeking legal help can significantly improve your chances of approval.
What is an Offer In Compromise?
An Offer in Compromise (OIC) is a tax relief option that allows eligible taxpayers to settle their IRS tax debt for less than the full amount owed. The basic idea is that if you owe taxes, penalties, and interest but do not have the assets or income to pay in full, you may qualify to resolve your debt through a reduced settlement with the IRS.
Unfortunately, many taxpayers who genuinely need this relief are unable to take advantage of it. Their applications are often rejected due to technical errors, incomplete documentation, or ineligibility. That’s why it is crucial to take every possible precaution when filing an OIC to minimize the risk of denial.
Types of IRS Offer in Compromise Agreements
Although an IRS lawyer is best positioned to assess whether your case qualifies for an Offer in Compromise (OIC), the following criteria can help you understand the conditions under which this IRS tax debt relief option may be granted.
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Doubt as to Liability
If a taxpayer disagrees with or has doubts about the accuracy of a tax debt, they may file for an IRS Offer in Compromise based on Doubt as to Liability. This category applies when the taxpayer believes the IRS has made an error, such as miscalculating taxes, wrongly applying penalties, or adding interest due to internal oversight. A valid reason must be provided for the debt to be reduced or removed.
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Doubt as to Collectibility
This option applies when the taxpayer acknowledges the debt but is financially unable to pay it in full. In such cases, the IRS may consider a compromise settlement agreement, allowing the taxpayer to pay a reduced amount. The government’s objective here is to collect a realistic, recoverable sum rather than pursue full payment that may not be feasible.
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Effective Tax Administration
If the taxpayer doesn’t qualify under the above two categories, they may still apply under Effective Tax Administration. This applies when the IRS agrees that full payment would cause significant economic hardship, despite the taxpayer technically being able to pay. To prevent undue hardship, the IRS may approve a settlement offer in compromise involving a partial payment or an extended payment plan.
7 Useful Tips to Qualify for an IRS Offer in Compromise
1. Don’t Accumulate Debts While an OIC Is Pending
Taxpayers applying for an IRS Offer in Compromise typically wait six to twelve months for the IRS to process the request. During this time, it’s essential to avoid adding to your tax liabilities, a practice known as “pyramiding.” To improve your chances of OIC approval, stay current on all filings and pay any taxes due while your offer is under review.
2. Don’t Make Lowball or Unsupported Offers
Some taxpayers mistakenly believe they can submit an unrealistically low settlement offer in compromise with no supporting documentation and still get approved. However, the IRS evaluates OIC requests based on your total disposable income and financial situation. Submitting an offer without proper backup is likely to be rejected. In such cases, you also forfeit the required 20% non-refundable upfront payment. If you apply again, another 20% down payment will be required.
3. Appeal a Rejection Only After Expert Consultation
If your offer is rejected, don’t lose hope, you can file an appeal. However, consult a tax attorney in Dallas or a qualified tax professional before doing so. They can review your original submission and identify any errors or missing information. Only about one-third of OIC applications are approved, and rejections often result from incomplete documentation. Working with a legal expert increases your chances of success. Remember, you must file your appeal within 30 days of receiving the rejection notice.
4. Confirm Your Eligibility Before Applying
While the IRS Offer in Compromise program can be a lifeline for those struggling with tax debt, eligibility is critical. You won’t qualify if you’re currently in an open bankruptcy or have significant equity in assets. To avoid wasting time and money, use the IRS’s Offer in Compromise Pre-Qualifier tool to assess your status and prepare accordingly.
5. Know the Alternatives
If your OIC isn’t approved, consider the Partial Pay Installment Agreement (PPIA) as an alternative. Under this program, you make payments based on what you can afford, and the IRS forgives the remaining balance after the ten-year statute of limitations on IRS collections expires. This clock typically starts ticking when:
- You file a tax return,
- The IRS completes an audit and assesses additional taxes, or
- The IRS files a Substitute for Return (SFR) on your behalf.
This option, although less discussed, is legally backed and can sometimes be more practical than an OIC.
6. Don’t Go the DIY Route
Handling an IRS compromise and settlement request without professional guidance is risky. IRS agents are trained to maximize collections, and if they determine you can pay through liquidating assets or setting up an installment plan, they’ll push for that. Engaging a tax lawyer in Dallas or Frisco ensures you get strategic guidance tailored to your financial situation.
7. Pay Your Taxes On Time After Acceptance
If your OIC is accepted, you must comply with IRS requirements moving forward. Specifically, you must file and pay taxes on time for the next five years. Failure to do so will void your agreement, and the IRS can reinstate the original debt, including penalties and interest. Stay compliant to preserve the benefits of your accepted OIC.
Consult Today
The IRS always acts in the best interest of the government, which means navigating tax resolution options requires a clear understanding of the rules and procedures. The most reliable way to reduce or eliminate the chances of rejection is to seek expert legal advice. The Law Offices of Nick Nemeth, PLLC is a dedicated team of professionals committed to helping individuals and businesses resolve complex IRS tax problems. With years of experience, Nick Nemeth has successfully guided many clients through the Offer in Compromise process and other tax relief solutions. Schedule your free, no-obligation consultation today to explore the best path toward resolving your IRS tax debt. To speak with Nick Nemeth directly or learn more about how we can help, fill out our contact form or call us at (972) 426-2944.
Frequently Asked Questions
1. What is an Offer in Compromise (OIC)?
An IRS Offer in Compromise (OIC) is an agreement that lets you settle your IRS tax debt for less than you owe. Many taxpayers in Texas, including Dallas, Fort Worth, and Frisco, consider an IRS compromise and settlement when paying the full amount would cause hardship.
2. How does the IRS Offer in Compromise process work?
The IRS reviews your income, expenses, and assets to decide if you qualify. If approved, you pay a reduced amount to settle your tax debt. Because the IRS Offer in Compromise process is detailed, having help from a trusted tax attorney serving in Dallas, Fort Worth, and Frisco can make it smooth and successful.
3. How long does an IRS Offer in Compromise take?
The timeline varies, but the IRS compromise settlement process can take several months to over a year. Working with an experienced offer in compromise attorney helps avoid delays and keeps your settlement offer moving forward.
4. What happens if my Offer in Compromise is rejected?
If your IRS Offer in Compromise is rejected, you may appeal or explore other settlement options. Getting IRS Offer in Compromise help from a qualified tax attorney can improve your chances of approval and lasting tax debt relief. If you’re ready to resolve your IRS tax debt, contact the Law Offices of Nick Nemeth to speak with an experienced IRS tax attorney in Dallas today.
5. Any tips for getting IRS Offer in Compromise help?
Always be honest about your finances, keep detailed records, and get IRS Offer in Compromise help from a trusted tax lawyer. The right legal support increases your chances of approval and helps you achieve lasting peace of mind.
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