IRS Offer in Compromise (OIC)
The IRS Offer in Compromise (OIC). It is an important tax savings vehicle that can result in you paying pennies on the dollar. You’ve seen the commercials. If you owe $10,000 in back taxes, give us a call. The IRS Fresh Start Program. And the commercials go on and on.
How do OICs really work?
An IRS Offer in Compromise (OIC) is not a series of forms such as the Form 656, Form 433 A OIC, or Form 433 B OIC. It’s not an IRS Offer in Compromise Pre Qualifier tool. The IRS Offer in Compromise (OIC) is not a negotiating tool, that allows you to “negotiate” with the IRS, despite what you saw on TV. In fact, an offer in compromise is acceptable to the government when it can collect more by accepting the offer than it would by collecting against the taxpayer.
The government, like other creditors, encounters situations where its tax accounts receivable cannot be collected in full. Also, the taxpayer may present a legitimate dispute as to the amount owed. Therefore, it is an accepted business practice to resolve these issues through negotiation and compromise.
What Offers in Compromise does the IRS actually accept?
The IRS may accept an offer in compromise when it is unlikely that the tax liability can be collected in full. Also, the amount offered reasonably reflects the collection potential or exceeds it. An IRS Offer in Compromise (OIC) is a legitimate alternative to declaring a case currently not collectible or a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.
Generally, the IRS has 10 years to collect a tax debt from the date of assessment. For example, a 2018 tax return is due on April 17, 2018. Therefore, the assessment occurs on the day of filing the tax return filed, or April 17, 2018 (tax day). The debt would therefore expire on April 17, 2028. This is called the collection statute expiration date, or CSED. The IRS generally actively collects during the first 7 years, although the debt remains in force for 10. Federal tax liens show the CSED date.
The IRS usually will offer an installment agreement for 72 months. That’s 6 years. If you pay using an IRS installment agreement, bear in mind a 0.5% penalty added to the balance monthly, plus interest, which I estimate at 0.5%. Interest rates are rising, so its simply an estimate.
OIC Payment plan
The OIC generally has two payment options. One is in less than 24 months. The second is up to 60 months.
Currently Not Collectible
Currently not collectible means that the IRS cannot collect. In essence, the taxpayer is unable to pay back taxes. There can be many reasons. For example, under IRS Collection Financial Standards, the taxpayer does not have income to service the debt. This might include corporations, limited liability partnerships (LLP), exempt organizations, or LLCs, deemed inactive and defunct with no assets. The collection of the liability would create a hardship for taxpayers by leaving them unable to meet necessary living expenses.
Therefore, if your IRS Offer in Compromise (OIC) offers more than can be collected, it has a strong chance of being accepted. If the debt can be paid in full for 72 months, the length of the installment agreement, then the OIC has a low chance of acceptance.
The Secret to OIC Acceptance
Our firm has had success in accepted OIC for persons and businesses. This is because we have presented a strong case that the taxpayer is offering more than is otherwise collectible. We do not accept the IRS’s standardized quick sale values, or QSV. Rather, we estimate a reasonable discount upon quick sale value and discount that pursuant to the taxpayer’s marginal tax rate, which in some cases is higher than the standardized IRS values.
In conclusion, to induce the IRS to accept an OIC, you should present that case that the government will receive more than it would otherwise in the collections process.
Contact us if you need some help.