The IRS provides many payment options for taxpayers who have unpaid, delinquent tax debt. As tax laws are often complicated, it is a wise course of action to consult with a tax professional to learn more about these options. One such option that is a useful tool is an Offer-In-Compromise (OIC). Here are some frequently asked questions and answers about OICs.
An offer in compromise allows taxpayers to settle tax debt for less than the full amount owed. It may be an option if taxpayers are unable to pay their full tax liability or doing so creates a financial hardship. The IRS considers a taxpayer’s unique set of facts and circumstances based on the ability to pay, income, expenses, and asset equity.
Typically, the IRS approves an offer in compromise when the amount offered represents the most the IRS may expect to collect within a reasonable time. The IRS recommends that taxpayers explore all other payment options before submitting an offer in compromise. Because the Offer-In-Compromise program applies only to some taxpayers, consult a tax professional for guidance and assistance in filing an offer.
*What happens if I do not calculate my offer correctly or my offer is not high enough?
The IRS calculates the correct amount for an offer. If more than a taxpayer’s offer and there are no special circumstances, the IRS will provide the taxpayer with an opportunity to increase the offer amount. If the offer is not increased accordingly, the offer will be rejected. If the IRS finds that the taxpayer has the means to pay the tax liability in full, the taxpayer may request to make payments through an installment agreement. Because the IRS reviews every OIC for fraud, submitting an OIC that contains false information, or making a false statement to the IRS, constitutes fraud and subjects the taxpayer to civil or criminal penalties.
*What are my options if I disagree with the IRS valuation of my ability to pay?
Taxpayers may provide additional verification or documentation to support a different valuation to the IRS during its OIC investigation. Taxpayers may also request a telephonic conference to discuss areas of disagreement. An experienced tax professional may provide valuable assistance in helping taxpayers sort through and meet the requirements related to OIC approval. Also, certain disputes may qualify for an expedited review known as Fast Track Mediation, which is not binding on either party. However, certain cases and issues are not eligible for Fast Track Mediation. Note that Fast Track Mediation does not apply once a rejection letter has been issued.
*How does an open audit affect an offer?
The IRS will not complete any investigation of an OIC while there is a pending claim or an open audit of any tax year on which tax liability is owed. The IRS recommends that taxpayers who submit claims requesting relief under innocent spouse provisions should wait for the resolution of these matters before submitting an OIC. Also, taxpayers who are notified that a tax year will be audited, or currently have a tax year under audit, should wait for the resolution of these matters before submitting an OIC. If an offer is submitted nonetheless, there is the risk that the IRS will not complete investigation of the OIC due to any pending audit or claim, the offer may be returned and the IRS will not refund any submitted payments and application fees.
*Must I file all required tax returns before submitting an OIC? Do I need to be current on my federal tax deposits?
Taxpayers must file all tax returns that they are legally required to file for personal or business taxes. Taxpayers who have a valid extension and have made their required payments will be considered current for this unfiled return. An extension does not extend the time to pay taxes, only to file the return.
*May I file an OIC while in bankruptcy?
No. once a taxpayer receives a discharge as a bankruptcy debtor and the bankruptcy case is closed, an OIC may be filed.
*How will my payments be applied?
Taxpayers may designate the tax debt to which they would like to apply their offer payment(s) when the offer is submitted or when the payment is made. Taxpayers may not designate the application fee, or any payment after the offer is accepted by the IRS. If no written designation is made, the IRS will apply any offer payments in the best interest of the government.
*Will my payments be returned by the IRS if my offer is not accepted?
No. Offer payments that must be sent with the offer are not refundable. However, any amount more than the required amount will be refunded if it is designated as a deposit on the OIC form.
*My offer was rejected, what are my options?
If a taxpayer disagrees with the rejection of his or her OIC, he or she has 30 days from the date on the rejection letter to appeal the decision. If a taxpayer agrees with the rejection, he or she may send full payment of the tax debt to avoid additional interest and penalty or request an installment agreement to pay the tax debt.
Note: Effective April 27, 2020: The application fee for Offer in Compromise is $205 unless a taxpayer qualifies for the low-income certification or submits a Doubt as to Liability offer. All Offer applications must be received on Form 656 with a revision date of April 27, 2020. The updated Form 656 includes new low-income certification guidelines and instructions.
The Gartzman Law Firm may help anyone interpret the effects of these extensions and amendments on their tax obligation. The Gartzman Law Firm may help taxpayers find effective solutions that may help any taxpayer solve problems with unpaid taxes and find relief. Call today at (770) 939-7710.