The Offer In Compromise (or “OIC”) is an IRS program which allows qualified individuals with an unpaid tax debt to negotiate a settled amount that is less than the total owed. If accepted, you are able to pay your full tax bill in one small, final payment.
If you’ve ever seen a TV ad where a national tax relief firm talks about settling your debt for ‘pennies on the dollar’, the OIC program is what they’re referring to. And who wouldn’t get excited about such a possibility? The good news it IS possible; the bad news is many taxpayers have been burned by nationally advertised tax relief companies. Many have simply failed to deliver on their promises.
That doesn’t mean you can’t get a fresh start with an OIC. It really is possible. It depends on the professional your’re working with. It also depends on your individual situation.
At least one of three conditions must be met to qualify a taxpayer for consideration of an Offer In Compromise settlement:
- Doubt as to Liability — Debtor can show reason for doubt that the assessed tax liability is correct
- Doubt as to Collectibility — Debtor can show that the debt is likely uncollectable in full by the IRS under any circumstances
- Effective Tax Administration — Debtor does not contest liability or collectibility, but can demonstrate extenuating or special circumstances that the collection of the debt would create an economic hardship or would be unfair and inequitable.
A taxpayer uses the checklist in the IRS Form 656, Offer in Compromise, package to determine if the taxpayer is qualified for the offer in compromise program. You have to be able to prove that you have no reasonable way to pay the full amount. You could be much better off engaging an Enrolled Agent to help work this strategy for you because taxpayers who try this on their own, without knowing the current guidelines and enforcement standards, often put themselves at risk of not qualifying for a settlement or paying more than the lowest amount allowed by law.