Tax obligations do not just go away. Fortunately, those who struggle with tax debt have options. One specific option to address a hefty bill with the Internal Revenue Service (IRS) is referred to as an offer in compromise.
An offer in compromise (OIC) is an agreement that is presented by the taxpayer to the IRS. Essentially, the taxpayer provides evidence to show that there is no way he or she could ever fully repay the debt. Instead, the taxpayer offers to pay a more manageable amount. The deal is supposed to be a win/win: the IRS gets some of the money while the taxpayer can have the debt settled.
Why would a taxpayer consider making an offer in compromise? Unfortunately, the IRS means business. If the debt is not addressed, the agency may move forward with wage garnishments or levies on property to satisfy the debt. This can be avoided with proactive action like an OIC.
How much is enough? Determining the right offer is tricky. The IRS Form 433 has a formula that can provide some guidance. A recent piece in Motley Fool notes that it is not uncommon to plug numbers into this formula only to get a final answer that is still unmanageable. This does not mean you should give up. Instead, consider moving forward with an offer that varies from the recommended formula. Include a letter explaining the reasoning for the variance.
What if an offer is rejected? Rejection is not the end. A careful review of the rejection notice will provide some information as to why the IRS was unhappy with the offer. This provides an opportunity to present a new offer that may get approval.
Ultimately, these offers can be difficult. Taxpayers can increase the likelihood of success by seeking legal counsel. An experienced offers in compromise tax lawyer can provide guidance on the process and better ensure an offer is approved by the IRS.
