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Offer In Compromise

What is an Offer in Compromise?

An offer in compromise is an agreement between a taxpayer and the IRS that settles back taxes for less than the full amount owed. The goal is a compromise that’s in the best interest of both the taxpayer and the agency.

If you can’t afford to pay your back taxes in full or paying it all will create a financial hardship for you, you may qualify for an offer in compromise (OIC).

Here are the main reasons the IRS may agree to accept less than the full amount you owe:

  • Insufficient Income and Assets: This means you don’t have enough income or assets to pay your balance due in full.
  • Hardship and Fairness: You can pay the balance due, but it would create an economic hardship or would be unfair or inequitable.

How Does the IRS Decide if a Taxpayer Qualifies for an OIC?

When reviewing applications, the IRS considers the taxpayer’s unique set of facts and special circumstances affecting their ability to pay including their:

Income

Expenses

ICO-asset-equity

Asset Equity

Once you have paid the IRS the full amount stated in an OIC agreement (and paid it within the agreed-upon time frame), your back taxes will be paid in full. Meaning, your back taxes will be considered officially resolved, even if – as is commonly the case – the OIC amount is just a tiny fraction of what you owed the IRS initially.

OIC Payment Options

There are two options for paying an OIC. To complete an OIC, you must select one of these options and include payment with your offer. The amount of the first and following payments will depend on the total amount you offer and which payment option you choose.
  • Lump Sum Offer: Typically, the IRS will require you to pay 20 percent of the total amount you’re offering when you submit the offer. You’ll need to pay the rest in five or fewer payments, within five or fewer months of the date the IRS accepts the offer.
  • Periodic Payment Offer: The IRS will require you to make the first payment when you submit the offer and the rest within 24 months, according to the terms of your offer.
For the IRS to accept an offer, you must file all tax returns due and be current with estimated tax payments or withholding. If you own a business and have employees, you must file all returns and be current on all your federal tax deposits.

How Often Does the IRS Accept Offer in Compromises?

The acceptance rate for OICs is low. Errors, omissions, and failure on the part of taxpayers to complete certain steps can often lead the IRS to reject an OIC offer. Working with a qualified tax professional can help improve one’s chances of receiving approval.

How Optima Can Help with an Offer in Compromise

Optima’s tax attorneys and licensed professionals specialize in offer-in-compromise filings. Our team will assist you from the first call all the way through to the final step that resolves your tax issues. Call for a free consultation with one of our tax professionals today and see the difference having Optima on your side can make.
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