The Offer in Compromise (OIC) is one of the most popular and widely misunderstood programs the IRS has to offer.
Television and radio ads blare out to the poor taxpayer how they can “Call now, and speak to our experienced representatives who will help you settle with the IRS for pennies on the dollar!” As if they had some magical inside track to convincing the IRS to give you some special deal.
At times I have gotten clients who have come back from working with these big nationally advertised tax settlement companies only to complain how they were taken for big retainers and still have the same IRS debt as before. That is because most OIC’s get rejected for failing to qualify.
Requirements to Qualify
It is true that an Offer in Compromise can allow you to settle for pennies on the dollar. But like anything that may be too good to be true, there are a strict requirements to qualify: The two main ones being 1) your monthly disposable income must be very very low (and IRS determines what this number is using pretty stingy formulas for your basic monthly needs) and 2) you must have virtually zero assets – almost no cash in the bank, no equity in your house, etc. Then you may qualify. An OIC can take up to a year to process, depending on which part of the country you are in. During that time the CSED (collection statute expiration date) freezes, meaning that the 10 year clock that ticks to allow your tax debt to expire stops ticking, which may not be good, especially if you are at all close to the end of that clock. If you are, just let it tick!
Upside to Offer in Compromise
An upside to OIC’s is that collection activity (bank account levies, etc.) are put on hold while the OIC is pending. However, some taxpayers are shocked to discover that ongoing levies (wages, etc.) that were placed on their income before the OIC was filed continue to stay in place. (see contract section “f” of the OIC provisions).
Know Before You Go
Like anything else in life, you should know before you go. Just filing an OIC without knowing whether you really qualify can be a waste of time and money. Call or email me to find out if your situation qualifies for an Offer in Compromise, or whether a different solution might be better for you.