Sniffing For Tax Forgiveness? See If an Offer in Compromise is Right For You!
With an IRS Offer in Compromise (OIC), you may be able to get a portion of your back taxes forgiven. It’s a legitimate tax program that throws a bone to those struggling with overdue taxes.
IRS Offer in Compromise Eligibility
An Offer in Compromise (OIC), sometimes mistakenly referred to as an offer and compromise, allows qualified taxpayers to settle their IRS back taxes for less than the full amount owed. This program is designed for individuals and businesses who are facing significant financial hardship and have no realistic way to fully repay their tax liabilities.
Who Qualifies for an Offer in Compromise?
The IRS will consider your OIC application if you meet all of the following conditions:
- You are current with all required tax filings, or have a valid extension for the current tax year.
- You have made all required estimated tax payments for the current year, if applicable.
- You are not in an open bankruptcy proceeding at the time you apply.
Even if you meet the basic qualifications, approval is not guaranteed. The IRS conducts a detailed financial analysis to determine if accepting a reduced settlement is appropriate.
What the IRS Considers
To evaluate whether you qualify for tax forgiveness through an OIC, the IRS will carefully assess:
- Ability to pay: Based on your income, expenses, and overall financial situation.
- Current and future income: Including wage income, business income, retirement income, and other sources.
- Reasonable living expenses: The IRS uses national and local standards to determine what qualifies as necessary.
- Equity in assets: This includes real estate, vehicles, bank accounts, retirement accounts, and other property you own.
If the IRS believes your reasonable collection potential (RCP) is less than the total amount you owe, they may accept your Offer in Compromise as a way to resolve any unpaid taxes.
Applying For an OIC: Understanding The Process
The Offer in Compromise program isn’t for everyone. The application process can be long and cumbersome, but that’s where Top Dog Tax Relief can help. Our experienced tax professionals can review your eligibility, prepare your financial disclosure, and assist in submitting a compelling offer that accurately reflects your true ability to pay.
It will take several months for the IRS to review your application and make a decision. During that time, the IRS:
- May file a Notice of Federal Tax Lien.
- Will suspend other collection activities.
- Will extend its collection period.
While your OIC is being considered, you don’t have to make any payments on an existing payment plan, but you do need to make all required payments per your offer. If the IRS has not made a decision within 24 months, your OIC will be automatically accepted, and a portion of your taxes will be forgiven.
Is There a State Tax Forgiveness Program?
Yes! Most states have a back taxes forgiveness program similar to the one offered by the IRS. Most states will consider an OIC if there’s:
- A genuine dispute about whether the amount owed is correct (Doubt as to Liability).
- A Doubt as to Collectibility (no reasonable expectation that the state can collect the full amount).
- Evidence that paying the full amount due would cause significant financial hardship (Effective Tax Administration).
The Offer in Compromise application process and eligibility requirements vary by state, and not all states offer tax forgiveness. To determine if your state has this option, speak with a tax professional or visit your state’s Department of Revenue website.