An Offer in Compromise (“OIC”) is one of the more famous of IRS tools, probably because of its sexy “pennies on the dollar” aspect that you hear so much about in TV and radio ads from tax promoters who give examples of their ecstatic clients settling with IRS for mere pennies on the dollars.
What these ads often don’t tell you is that you have to be nearly a pauper in most cases to get an OIC approved by IRS. An OIC application can take quite a few months to process, and often a taxpayer is asked to submit not only his full set of financial statements with his original offer, but when IRS gets around to examining the offer months later, IRS often then asks for another full set of updated financial statements.
OIC’s are also popular because they toll (freeze) collection actions while the offer is pending. As a result, some uninformed taxpayers are lulled into a sense of security because IRS is doing nothing bad to them for several months, and the taxpayer thinks everything is “ok” or maybe the debt is gone. But if the offer is finally rejected, as often occurs, you are back to square one. Also, the collection statute (the 10 years IRS has to collect back taxes from you) is also tolled (frozen) while an OIC is pending, which can haunt you later on when you think your taxes might be due to expire.
However, given the right circumstances, an OIC can work and be an effective tool for settling an IRS debt.
If you want to file an OIC, you should consult with me.Offers In Compromise