Can you settle your debt with the IRS for less than what you owe? The answer to this is yes, you can. What you need to know is that this is something you can do on your own, without having to worry about paying an expensive attorney or using some service that will claim to try to “negotiate” it for you. In other words, you have the legal right to present the IRS with an opportunity to settle what you owe. It’s called an Offer in Compromise (or OIC). Here’s what you need to know about it.
Here are the Basics – Where to Get Started
If you want to jump right into it, you can read Form 656 – Offer in Compromise from the IRS to help you. This is a guide, directly from the IRS, that provides you with all the information. It’s long, a bit confusing and can be challenging to manage on your own, but it isn’t a hidden program at all. Rather, it’s an opportunity for you to get back on track financially by settling your tax debt.
Here, we’ll break down the details and give you a better picture of what options may be available to you.
What Is an IRS OIC?
An Offer in Compromise, or OIC, is a process in which the IRS agrees to accept less than the amount of money that you owe on a tax debt as payment in full. This is a way for you to wipe clean much of the debt you owe to the IRS. It can allow you to reduce what you owe by a significant amount of money.
To be clear, the IRS may allow this to happen, but it is not legally obligated to do so. You don’t have a legal right to this type of reduced tax bill. The IRS has the discretion to allow it or not to allow it, depending on the situation. The IRS is required to give your offer fair consideration, though. If you submit your IRS OIC properly (and this really is an important part of the process) you can expect for them to review it and to make a fair decision.
Will they do so? The IRS wants you to settle tax debt sooner rather than later. And, if your financial condition warrants it, they are likely to approve it. This is all based on a formula. In fact, if you review the IRS Form 433A OIC – you can see the formula for calculating your “Minimum Offer Amount.”
What Makes the IRS Consider an Offer in Compromise?
There are various things that the IRS uses to make this decision. We cannot know what the outcome will be. However, there are a few things that make it more likely that you will have the IRS accept your offer.
#1: Show Them There Is a Reason Why They May Not Get Paid
If you have the financial means to pay your debt in full, they have no motivation to accept an offer. In other words, you need to show the IRS that there is some reason to expect that you will be unable to repay your debt. This is called a “double as to collectability.” This is the most common reason for submitting an OIC.
#2: There Is Some Economic Hardship Present
A second situation involves proving to the IRS that paying your tax bill would cause some type of exceptional economic hardship. There are various reasons this could happen, but it is up to you to show that repaying the debt would make it hard for you. Another way to look at this is if the repayment of the debt would be unfair in some way or inequitable.
#3: Prove Doubt as to Liability
Another way to use the IRS OIC is to show that there is some type of reason why the debt charged is inaccurate. This is an option to consider if you believe that the debt is incorrect for some reason. This is not an easy area to prove, but it is an option for those who qualify to get the support they need. If there is some reason to believe the debt isn’t fairly accessed, then a doubt as to liability can be a reason for the approval of an offer in compromise (keep in mind, to use this method, you must also fill out Form 656-L with the IRS).
What Happens in an Offer in Compromise?
Though your situation may seem unique, it generally isn’t. That is, the IRS works with many people who need this type of financial support when it comes to paying their debt.
The process begins by submitting this offer to the IRS. You will need to do this by completing Form 656 and Form 433-A OIC with the IRS. It is not always an easy form to fill out – which is why it tends to be a good thing to have step by step guidance from a company like Wiztax (see the Wiztax FAQ for more details).
In addition to the required forms, you will also need to submit a payment of $186 (at the time of this writing) to the IRS. This is an application fee only. If your income is considered below the poverty guidelines, you may be able to avoid having to pay this amount. If you believe this is the case, you need to let the IRS know that when you apply for the IRS OIC using the Application Fee Worksheet.
Form 433-A and Form 433-B
You will provide you information on Form 433-A OIC for individuals and, if you are a business that is claiming this support, on Form 433-B. It is called the Collection Information Statement.
These are very important documents because this is what the IRS will look at to make decisions. More so, if you make claims here that are anything less than accurate, they are likely to deny your request. Be sure to complete it accurately and completely. Once again, Wiztax automated this entire process for you.
Additional Details You Need to Provide
You also need to provide documentation to back up the information you provide. This will include things like your recent paycheck stub, bank statements and so on (as applicable). You also need to provide information about your current assets, such as your home mortgage statement and your vehicle registration(s). At Wiztax, our system will not only fill out the IRS Forms for you, but will give you simple instructions on your next steps.
How Likely Are You to Get an Offer in Compromise to Work for You?
There is no rule of thumb that provides exact and specific information on whether or not you will get an approval for an Offer in Compromise. You can significantly increase your chances of receiving a yes to your Offer if you submit an accurate offer – which you can do with the help of tools such as Wiztax. Get started for Free today. Remember, this isn’t meant to be
Remember, there are a number of different options available to you if you owe the IRS money. For many, going on a monthly payment plan is a great solution – especially when they don’t qualify for an Offer. For more information see: “What are the different tax relief options that are available?”
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