Since its inception, our blog has dedicated considerable time to discussing the many tools or “enforcement options” the Internal Revenue Service has at its disposal. As disconcerting as this type of information can be to learn, the purpose hasn’t been to cause unnecessary alarm, but rather to impress upon people why it’s so important for them to take federal tax matters seriously.
In today’s post, the first in a series, we’ll switch gears by focusing not on a particular tool available to the IRS, but rather on one available to you, the taxpayer. Specifically, the Offer in Compromise, or OIC, which the IRS says is designed to provide individuals with “a path toward paying off their tax debt and getting a fresh start.”
For those uncertain as to what an OIC actually is, it’s essentially an agreement between the taxpayer and the IRS to resolve an outstanding tax debt for less than the amount owed.
While this is a simple enough concept, its execution is anything but simple. In other words, merely submitting an application for an OIC will not be enough, as the IRS will conduct a rigorous evaluation/verification process to examine not just your ability to pay, but also whether you are even eligible.
In general, the IRS will not consider an application for an OIC unless a taxpayer has satisfied all of the following elements:
- Filed all legally-required tax returns
- Received at least one bill for a tax debt included in the offer
- Submitted all of the requisite estimated tax payments for the current year; and
- Made all mandatory federal tax deposits for the current quarter (if a business with employees)
It’s important to understand that if you (or your business) is involved in an open bankruptcy case, an OIC is not an option. This is also the case if the IRS determines that you can actually afford to cover the tax debt in question via the equity in certain assets or an installment agreement.
We’ll continue this complex conversation in our next post, examining the available payment options for an OIC and other factors of which taxpayers should be aware …
If you would like to learn more about the possibility of pursing an OIC or have another pressing tax matter, consider speaking with a skilled legal professional who protect your rights and your best interests as soon as possible.