Larson Tax Relief – Offer in Compromise Overview
About Larson Tax Relief Services
Larson Tax Relief is an award-winning tax resolution firm that’s been serving clients all over the US for over 16 years. With an A+ rating from the Better Business Bureau, we specialize in finding solutions to state and federal tax issues for both individuals and businesses, and have helped over 18,000 clients to date.
Originally founded by Jack and Ron Larson, the firm now boasts a large team of IRS and state tax relief experts, including 17 federally licensed IRS Enrolled Agents, including company president Jack Larson himself. Jack is also company president and a member of both the National Association of Enrolled Agents and the National Association of Tax Professionals.
Offer in Compromise with the IRS
If you can’t pay your back taxes in full, you can request an Offer in Compromise. If approved, you’ll be able to settle your debt for less than that full amount.
What Is an Offer in Compromise?
An Offer in Compromise (OIC) is a means of settling unpaid tax debt for a fraction of the amount owed. An OIC is a last resort for when other methods of getting current on back taxes aren’t viable.
Although it may be a viable solution if your debt is related to financial hardship, the IRS is under no obligation to accept an OIC. This makes it important to verify your eligibility before putting forward an OIC. Individuals and businesses in bankruptcy proceedings are not eligible for OICs.
Who Qualifies for an IRS Offer in Compromise?
To confirm your eligibility for a compromise, the IRS requires you to submit an application. Generally, you need to meet the following criteria:
- Have all legally required tax returns filed
- Have a bill for some or all of the debts relevant to your offer
- Be current the current year’s mandatory estimated tax payments
If you’re submitting an OIC application as a business owner, you need to be current on the current quarter’s mandatory federal tax deposits.
What is the Minimum Offer Amount on an Offer in Compromise?
The minimum offer amount for an OIC depends on a combination of factors, including your income, expenses, assets, and future earning potential. The IRS Form 656 (OIC) can be used to calculate a figure.
The application for an OIC includes two payment options to choose from, which will impact your initial payment:
- Lump-Sum Cash: initial payment is 20% of the total settlement figure. If your offer is accepted, you must pay the remainder of the figure within five payments.
- Periodic Payment: initial payment is equivalent to the monthly payments proposed in your application. If your offer is accepted, you will make monthly payments until your debt is settled.
Types of Offers In Compromise
The IRS typically accepts an OIC for one of the following reasons:
- Doubt as to Collectibility: Your income and assets are insufficient, such that you are unable to repay your debt within the statutory period.
- Doubt as to Liability: There is reason to believe that you do not owe the tax liability as it has been assessed. This could be because the tax examiner misinterpreted the tax code when assessing your liability, didn’t consider evidence that you presented to them, or you have new evidence that contradicts their assessment.
- Exceptional Circumstances (Effective Tax Administration): The assessed liability is correct, but there is some form of extenuating circumstance that proves that paying the liability in full would be unfair or inequitable, or would create severe financial hardship.
How to Get an Offer in Compromise with the IRS
To apply for an OIC with the IRS:
- Compile your financial information. This includes:
- Completing Form 656 (OIC) and 433-A Collection Information Statement for Wage Earners and Self-Employed Individuals. Attach the required documentation if applicable.
- Completing Form 656 (OIC) and 433-B Collection Information Statement for Businesses. Attach the required documentation if applicable.
- Pay the $205 application fee and your initial payment by mail or online using the EFTPS. You may be exempt from paying the fee if you meet the Low-Income Certification guidelines.
- Make copies of your documents and mail the originals to the IRS.
The IRS will seek to confirm that your proposed settlement amount is the maximum they can expect to receive in a reasonable timeframe. As such, they will evaluate your income, expenses, ability to pay, the value of your assets, and your equity.
The application process for OICs can be difficult to get through. Incomplete applications are returned, and applications submitted without first meeting the criteria outlined above are rejected outright (though there are exceptions if your current year tax return hasn’t been filed but you’ve had an extension request accepted by the IRS). Even when an application is accepted, it can take up to a year and a half to complete the process. However, rejected applications can be appealed via Form 13711 (Request for Appeal of Offer in Compromise).
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.