UNDERSTANDING OFFER IN COMPROMISE (OIC)

One of the most misunderstood methods to resolve your IRS tax debt is the Offer in Compromise (OIC). It is a taxpayer's opportunity to offer the IRS a lump sum payment to compromise their entire tax liability. In other words, you may be able to settle your entire tax liability for an amount less than you owe the IRS, sometimes much less.

The OIC has recently been referred to as the Fresh Start program or "pennies on the dollar." In reality, the OIC program has been available to tax debtors for the last 50 years, but it has only been in the last few years that the IRS criteria to qualify to reduce your tax liability has become a more viable alternative. The chances of having an OIC accepted by the IRS are not great, but they have been getting better every year.

The OIC is designed for taxpayers who cannot fully pay their tax liabilities within 10 years. It is for taxpayers who cannot handle a five or ten year installment agreement, but may be able to pay a lump sum within a year or two that would be more appealing to the IRS than an extended installment agreement. Here are the important factors when considering an OIC.

In 2015 the IRS accepted about 27,400 Offers. That is only about 540 per state, but we think more and more taxpayers will qualify for the Offer in Compromise solution in the future. However, the OIC is by no means a simple or easy process.

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The IRS requires full financial disclosure on the part of the taxpayer. This means providing bank statements, pay stubs, canceled checks, credit card statement, mortgage statements, etc.. Basically, anything they ask for.

The IRS conducts an in-depth financial analysis of the taxpayer's assets, equity, income, expenses and future ability to pay by analyzing and verifying all of the above documentation and more.

The OIC process can take from six months to one year and possibly longer.

It requires that the taxpayer convince the IRS that their tax debt problems are in the past and they are able to pay all their taxes in the future. This requires current proper withholding on paychecks, proper and timely Estimated Tax Payments for the self-employed and Federal Tax Deposits for an employer.

The amount that must be offered is not a secret percentage of tax owed or an amount pulled out of the air. The offered amount is based on a financial formula to determine the taxpayer's realizable equity in assets AND the difference in average monthly income versus average monthly allowable expenses that results in the amount the IRS will accept to compromise your entire tax liability.

The lump sum amount requires 20% of the total offered amount to be paid with the OIC (basically non- refundable) and the remaining balance paid in five or fewer payments within five or fewer months of the date your OIC is accepted. (There is also a 24 monthly payment OIC. However, the total amount is somewhat larger than the lump sum OIC, the first monthly payment must be made with the submission of the OIC and the subsequent monthly payments made pending the acceptance of your OIC. If the OIC is rejected you forfeit the previously paid monthly payments.)

Once the OIC is accepted, if the taxpayer files another tax return in the next five years that is not fully paid, it could cause a rescission or cancellation of the OIC and the entire liability with penalties and interest will come rushing back.

Basically the IRS must determine if the amount of your OIC is more than they can collect over the next five to ten years, is equal to their determination of your true ability to pay and must be "in the best interest of the government and the taxpayer." The OIC process requires expeditious and comprehensive responses to any and all IRS requests. If not, the OIC will be rejected and your 20% payment will not be refunded or returned, but will be applied to your tax liability . As we said, the OIC process is not simple or easy. But, with the experienced professionals at Demetriou, Montano & Associates you have a much better chance at resolving your tax liability once and for all. In addition, the State of California and other states also have similar OIC programs

Basically the IRS must determine if the amount of your Offer is more than they can collect over the next five to ten years, is equal to their determination of your true ability to pay and must be "in the best interest of the government and the taxpayer." The OIC process requires expeditious and comprehensive responses to any and all IRS requests. If not, the OIC will be rejected and your 20% payment forfeited. As we said, the OIC process is not simple or easy. But, with the experienced professionals at Demetriou, Montano & Associates you have a much better chance at resolving your tax liability once and for all. In addition, the State of California and other states also have similar OIC programs