How to Get an Offer in Compromise Approved with the IRS in 2023 (many states have similar rules)
Do you owe a tax debt you believe you can’t and won’t be able to pay in full? If the IRS agrees, you may be able to get an Offer in Compromise (OIC) approved to settle your debt for less than the full amount.
Naturally, OICs are difficult to get approved. The IRS is known more for collecting taxes rather than forgiving taxes. But there are exceptions for extraordinary circumstances and hardship situations. Here, we explain what an OIC involves, what you’ll need to provide, tips to improve your odds of approval, and what to do if you need help applying.
What is an Offer in Compromise (OIC)?
As mentioned above, an OIC is a settlement between a taxpayer and the IRS. To qualify, you need to meet at least one of the following criteria:
Doubt as to Collectibility: You don’t have enough income and assets to pay what you owe in the relevant timeframe.
Doubt as to Liability: You have a valid reason to believe that your debt has been mistakenly assessed. One example would be a misinterpretation of tax codes by the examiner who made the assessment. Similarly, you could qualify if you have evidence that contradicts the assessment, or if the examiner didn’t assess the evidence you previously provided.
Exceptional Circumstances (Effective Tax Administration): You can also qualify for an OIC if you can verify that you have extenuating circumstances, and can prove that it would be unfair, inequitable, or cause severe financial hardship if you were forced to pay your debt.
How the IRS Decides to Accept an Offer in Compromise
If you have submitted an OIC with all of the relevant documentation completed, the IRS will review it. They will consider all factors of your financial situation, including your income, assets, expenses, ability to pay, and your proposed settlement amount.
Do You Qualify for an Offer in Compromise?
In addition to meeting one or more of the above criteria, qualifying for an OIC requires that you:
- Have filed all legally required tax returns
- Are current on mandatory estimated payments for the current tax year
- Are you in receipt of a bill related to one or more tax debts you plan to include in your OIC
- Are not actively involved in bankruptcy proceedings
- Business owners may also qualify, but all federal tax deposits for the current quarter must be made.
How to Submit an Offer In Compromise Application to the IRS
- Step 1: Gather any relevant financial data.
- Step 2: Complete Form 433-A Collection Information Statement for Wage Earners and Self-Employed Individuals and attach the required documentation (if applicable).
- Step 3: Complete Form 433-B Collection Information Statement for Businesses and attach the required documentation (if applicable).
- Step 4: Complete Form 656 (Offer in Compromise).
- Step 5: Send the application fee and your initial payment to the IRS through the EFTPS or by mail. (You could be eligible for an application fee waiver if you meet the Low-Income Certification guidelines).
- Step 6: Make copies of the tax forms and supporting documents.
- Step 7: Submit the original documents to the IRS.
Keep in mind that the IRS must find your proposed settlement amount to be reasonable. IRS Form 656 can help you come up with a figure.
Also, keep in mind that your first payment should be based on either:
- Lump-Sum Cash Offer: 20% of the proposed settlement amount. If you choose this option and the IRS accepts your OIC, be prepared to pay the remaining balance in five payments or less.
- Periodic Payment Offer: The amount that you intend to pay each month until the debt is paid.
- Tips for Getting an Offer in Compromise Approved
The acceptance rate for OICs is still relatively low, but you can improve your odds of approval by:
- Reviewing your application for math errors and blank spaces and correcting them
- Propose a reasonable settlement offer
- Stay current on your tax return filings (and file all past-due tax returns)
- Don’t take on any additional tax debt during the review process
- Promptly file an appeal if your initial request is denied
- Hire a tax professional with experience getting OICs approved
- Complete all forms accurately and pay the required application fee and initial non-refundable payment
If your initial request is denied, you can file an appeal by submitting Form 13711 (Request for Appeal of Offer in Compromise). When you submit this document, the IRS may reconsider your initial request.
Get Professional Help With Your Offer In Compromise
Applying for an OIC can be confusing, lengthy, and stressful. It can take anywhere from six months to a year to process your application, and it may be denied for a wide variety of reasons. There’s also the possibility of retroactive rejection, by which your application may be denied up to five years after it’s been accepted.
Getting qualified assistance with this process, such as that offered by Larson Tax Relief, can boost your approval odds while saving you time and stress. We have a proven track record getting OICs approved, and can deal with the IRS directly so that you don’t have to.
About Larson Tax Relief
Larson Tax Relief is a family-owned and operated tax resolution company that’s been helping individuals and businesses around the US since 2004. With an A+ rating from the Better Business Bureau, Larson is comprised of 65 employees, including 17 federally licensed IRS Enrolled Agents.
One of those agents is Larson co-founder and company president Jack Larson, who is a member of both the National Association of Enrolled Agents and the National Association of Tax Professionals.
To learn more, or to get a free evaluation of your situation call us today at 888-589-0955 or fill out our online form below.