Understanding an Offer In Compromise - Do You Qualify?
An Offer In Compromise (OIC) is one of the most well-known IRS back tax settlement options out there, and many Dallas area taxpayers with back tax problems may be wondering if they qualify for an OIC. There are plenty of tax resolution providers in the area that advertise OIC qualification, all over the TV, radio, and internet, but these advertisements don't mention the criteria and requirements that must be met before you can qualify for a desirable OIC program.
What Is An Offer In Compromise?
An Offer In Compromise is basically just negotiating down a debt to a creditor, in this case, the IRS. If you owe back taxes to the IRS, you may be eligible to negotiate the total back tax amount down to a more desirable, or compromised fee that is spread out into monthly payments. To qualify, you must pursue the help of a licensed tax professional like a tax attorney that knows how to work the proper IRS channels and handle the application process.
What Factors Are Considered?
Fact is, not everyone who owes back taxes is a good candidate for an OIC. There are multiple factors that come into play to even qualify. Even after you are granted an OIC, you must comply with ongoing conditions to remain eligible.
To qualify for an OIC, the less you have in liquid and non-liquid assets, the more leverage you have to negotiate down the amount. The IRS looks at the following personal/business assets:
- Your monthly income (W2 or 1099 income)
- Bank account values
- Qualified and non-qualified investment accounts (stocks, bonds, 401, IRAs, life insurance, real estate commodities, etc)
- Equity values (home, vehicle, boats, etc)
With your income, the IRS looks at your monthly income versus a standard "cost of living" expense. The smaller the disparity in those 2 values, the better offer you can apply for. However, the IRS does have a cap on how much you can claim for monthly living expenses, to avoid anyone abusing the system.
Another big factor is application process time. It usually takes a minimum of 6 months before the IRS reaches a final decision on your offer. During that waiting period, your tax debt is still accruing interest, so it makes it even more important that you have a licensed tax attorney that knows how to assess your situation and properly file your offer, giving you an optimal chance in qualifying for an OIC.
Once you qualify for an OIC, you must be able to satisfy the ongoing requirements, including:
- 20% down payment due at time of submitting offer
- Remaining OIC balance must be paid off in 5 months
- You must maintain your IRS tax compliance within the next 5 years after submitting your offer
Failing to comply with these requirements will result in losing your OIC, or other penalties enforced by the IRS.
As you can see, an OIC involves many different factors and requirements to be met before you can qualify, or continue being eligible for an OIC. Remember, the IRS looks at taxes as a loan to you, and expects every U.S. taxpayer to treat their tax obligations as a priority over all other expenses. When contacting us, or any other IRS back tax settlement provider to inquire about an OIC, keep these informative tips in mind before you consider applying for an OIC. Knowing the ins-and-outs of an OIC can help you in the long run!