OIC (Offer In Compromise)

I bet you’ve heard the radio commercials and seen the TV commercials – where they claim that you can settle your debt with the IRS for just pennies on the dollar. In those rare situations where the IRS agrees with a taxpayer and agrees with their offer it is accomplished using the IRS “Offer in Compromise” program. The OIC program is supposed ot allow “ELIGIBLE taxpayers” to settle their tax debt which may have been incorrectly assessed or for valid outstanding tax that the taxpayer cannot afford to pay.

Actual IRS Wording

The IRS Code states: “We will accept an Offer in Compromise when it is unlikely that we can collect the full amount owed and the amount you offer reasonably reflects the collection potential…” (Internal Revenue Code section 7122).

What is an Offer In Compromise?

Offer In Compromise Program to the rescueAn Offer in Compromise (OIC) is an agreement between the taxpayer and the federal government that settles a tax liability for payment of less than the full amount owed. The IRS will generally accept an Offer In Compromise when it is demonstrated that it is unlikely that the tax liability can be collected in full and that the amount offered by the taxpayer is probably as much and the IRS calculates that it could reasonably collect from the taxpayer’s assets and disposable monthly income if it were to press collection. There is a great expense to the government in time and money to collect delinquent taxes – so the IRS is often willing to settle.

The process for determination is referred to as the “reasonable collection potential.” The IRS will view an Offer In Compromise as a reasonable alternative to declaring a case currently not collectible or entering into a long and drawn-out “installment agreement” with a taxpayer.

The IRS, just like any reasonable person, has the ultimate goal in approving an OIC if they calculate that they can collect of the amount that it believes to be potentially collectible from a taxpayer in the shortest amount of time with the least cost to the government.

Sometimes it is possible to fully and completely eliminate the taxes you owe – including all penalties and interest – at an enormous discount. There is no preset bottom limit that the IRS will accept to settle your debt especially if your offer is done “right.” Problem is, you have to be virtually asset-free to qualify. So if you rent rather than own, have very little tangible personal property, and there is no way given your health and/or employment options to pay the IRS the debt you owe, you may be one of the few people who can actually get approved for an OIC submission. Most folks in Orange County, CA (an expensive place to live) have sufficient assets to where the IRS will not approve what often is considered a Hail Mary.

If your situation is within the parameters of what the IRS will approve and your OIC request is prepared correctly, your debt may be settled for only 5-15% of what you presently owe. It is said by many who are successful, that the key is to determine the least amount that the IRS will accept from you before you make your Offer In Compromise.

Offer In Compromise Program to the Rescue for Some

Are you mentally debilitated with fear, worry and stress over your unpaid tax liabilities? If so, decide to be pro-active and give the OIC program a try. If your OIC submittal is rejected, perhaps we can submit an IRS Installment Agreement and when close to getting the government paid off petition the IRS for a penalty abatement. There is always hope and success for those who keep trying! If your financial records are in disarray, perhaps I can help you get they straightened out, help with some tax planning for the coming year and help you review your petitions to the IRS going forward. Those who try often succeed.

Owe Taxes? Can’t Pay? See If You Qualify To Settle For Less

If you owe taxes and can’t pay all at once, or even over many months, you might qualify to settle for less. The federal process of submitting an Offer in Compromise and obtaining IRS acceptance is fairly complicated. Successful outcomes require substantial attention to detail, and compliance with very specific IRS procedures, guidelines and regulations.

The IRS is incentivised to say “YES!” to a reasonable offer

The government (the IRS) is already the biggest collection agency in the world; and now the IRS is being asked to become the new collection agency and enforcer for ObamaCare which might ultimately demand $1,000 to $2,000 in fess and penalties for those who choose not to secure health care for themselves and their families. Moreover, those who do purchase health insurance will need to prove that their policy provisions meet the approved criteria which would also fall the the IRS for verification. Tax rates in years 2013-2016 are rising to reduce the nation’s debt and all this additional burden makes settling the collection of “old debts” a priority. The IRS will often “say yes” to most any reasonable offer to “settle up.” Moreover, the government’s rationale is that these OIC settlements are in the government’s best interest because statistic prove out that following its acceptance of a taxpayer’s adequate offer the result will be to create a “fresh start” for the taxpayer. Statistics also prove that a fresh start will result in more regular compliance with future filing and payment requirements from those taxpayers the IRS grants significant “forgiveness” and discounts. It is human nature and it works —for both the taxpayer and the IRS!

The IRS has all New Tasks – This is a Great Time to Submit an Offer

If you find yourself between a rock and hard place, this is a great window of opportunity for you to put your unfiled returns or unpaid tax liability in your rear-view mirror once and for all. There is a caveat, however. Once an Offer In Compromise is accepted, that the taxpayer must remain in compliance with all filing and payment requirements for the next five years. We can help you meet that requirement by assisting you with preparing and filing your future returns.

Types of Offers In Compromise

Three different kinds of Offers in Compromise:

  1. Doubt as to Collectability – Based on your circumstances, there is doubt that you could ever pay the full amount of tax owed. Before the IRS can consider a “doubt as to collectability” offer, it must be demonstrated that the taxpayer must not be able to pay the taxes in full either by liquidating assets or through installment agreement payment guidelines.
  2. Doubt as to Liability – When it is demonstrated that some doubt exists that the assessed tax is correct, or it can be proven that you do not owe the tax assessed against you. If you and your Tax Representative do not believe that you owe the tax liability, then OIC is submitted for “Doubt as to Liability.” When submitting a Doubt as to Liability OIC-Offer it has to be accompanied with a detailed written statement explaining why the taxpayer believes they are not liable for the tax bill in question.
  3. Effective Tax Administration (ETA) – When the taxpayer agrees with the delinquent tax amount that the IRS is seeking to collect and might even be able to pay the full amount owed based on assets or income, but for an exceptional circumstance. To be accepted for an Effective Tax Administration OIC, the taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable. The taxpayer or legal representative must submit a “collection information statement,’ various attachments to the statement, and a written narrative fully detailing the taxpayer’s special circumstances and how payment of the full delinquent tax amount would create an economic hardship or would be unfair and inequitable.

Three different payment periods that might be allowed:

  • Cash – paid in 90 days or less following acceptance of OIC petition;
  • Short-Term Deferred Payment – paid between 90 days and up to 24 months; or
  • Deferred Payment – to be paid over the remaining statutory period of the tax liability.

For taxpayers who can qualify of an Offer in Compromise, the end result could result in some or all of their tax debt forgiven which will go a long way to resolving their Federal tax problem and provide them a ‘fresh start’ with the IRS. Drafting an effective Offer in Compromise is complicated. We can help you get your financial statements together so that your petition for an OIC is attached to a picture of your finances that the IRS can properly evaluate.

Call (714) 863-7857 if you need your records and finances put in good order.

Palovik Financial Services

Eugene Palovik
Palovik Financial Services
P.O. BOX 206
Buena Park, CA 90621

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