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Expert Tips For Getting an IRS Offer in Compromise Approved

The Internal Revenue Service (IRS) Offer in Compromise (OIC) program is a powerful tool designed to assist taxpayers struggling with substantial tax debt. This initiative allows eligible individuals to negotiate a settlement with the IRS, potentially resolving their outstanding liabilities for a fraction of the total amount owed. By participating in the OIC program, you can achieve a fresh financial start and alleviate the burden of overwhelming tax obligations. If you are considering this type of tax relief, check out these expert tips for how to get an IRS Offer in Compromise approved.

Eligibility Requirements For an Offer in Compromise

The concept behind an Offer in Compromise is straightforward. The IRS recognizes that, in certain circumstances, it may be more advantageous to accept a reduced payment than to pursue the full amount owed, especially if the likelihood of collecting the entire debt is low. This approach benefits both parties. The taxpayer obtains relief from a crippling financial burden, while the IRS secures a reasonable payment and avoids prolonged collection efforts.

To qualify for an Offer in Compromise, however, you must meet specific criteria set forth by the IRS. The primary requirements include:

  1. Tax filing compliance. You must have filed all required tax returns for the past six years and have made estimated tax payments for the current year, if applicable.
  2. Inability to pay the full amount. The IRS will evaluate your reasonable collection potential (RCP), which considers your income, assets, and allowable expenses. If your RCP is less than the total tax debt, you may qualify for an OIC.
  3. No intentional disregard of tax obligations. You must not have deliberately attempted to evade or avoid paying taxes.
  4. Not currently seeking bankruptcy. You are ineligible to apply for an OIC if you are in open bankruptcy proceedings.

It’s important to note that meeting these requirements does not guarantee approval of your Offer in Compromise. The IRS will thoroughly review your financial situation and consider various factors before either approving or denying your OIC.

Tips For Preparing an OIC Application

Submitting a well-prepared and comprehensive Offer in Compromise application is crucial for increasing your chances of approval. Here are some tips to help you navigate the process.

  • Gather all necessary documentation. Compile accurate and up-to-date financial records. This includes income statements, bank statements, investment account information, and proof of expenses. The IRS will scrutinize these documents to assess your ability to pay.
  • Calculate your reasonable collection potential (RCP). Accurately determining your RCP is essential. It forms the basis for the IRS’s decision. Consult a tax professional or follow the steps in the next section to estimate your RCP.
  • Provide a compelling narrative. In addition to financial documents, include a detailed explanation of your unique circumstances and the reasons why you are unable to pay the full tax debt. This narrative can help the IRS understand your situation and increase the likelihood of approval.
  • Choose the appropriate payment option. The IRS offers two payment options for an Offer in Compromise: lump-sum cash or periodic payment. A lump sum offer must be paid within 5 months or less after the OIC is accepted. If choosing the periodic payment plan, you’ll have up to 24 months to pay in full.

How to Calculate Your Reasonable Collection Potential (RCP)

The reasonable collection potential (RCP) is a crucial factor in determining your eligibility for an Offer in Compromise. The IRS calculates your RCP by considering your monthly income, assets, and allowable expenses over a specific period, typically 12 or 24 months.

To estimate your RCP, follow these steps:

  1. Determine your monthly income. Calculate your average monthly gross income from all sources, including employment, self-employment, investments, and other sources.
  2. Identify your allowable expenses. The IRS provides guidelines for allowable expenses, such as housing, utilities, transportation, and healthcare. These expenses are deducted from your income to determine your disposable income.
  3. Value your assets. Compile a list of your assets, including real estate, vehicles, investments, and other valuable possessions. The IRS will consider the equity value of these assets when calculating your RCP.
  4. Estimate future income potential. Consider any opportunities for future income potential. For example, this could be a change in employment (part-time to full-time, or vice versa) or an annual salary increase.
  5. Calculate your RCP. Take your monthly income and deduct your allowable expenses. This will calculate your disposable monthly income. Multiply that result by 12 (or 24 if you plan to request a periodic payment plan). If you have assets that can be sold, add that amount to the overall total. The result is what you should be able to pay the IRS at a bare minimum.

It’s important to note that the IRS may adjust your RCP based on additional information or extenuating circumstances. Working with a tax professional can help ensure an accurate RCP calculation and increase your chances of a favorable outcome.

Strategies to Increase Your Chances of Getting an Offer in Compromise Approved

Although there is no guaranteed path to approval, implementing the following strategies can significantly improve your chances of having your Offer in Compromise accepted by the IRS.

  • Demonstrate financial hardship. Provide detailed documentation and a compelling narrative that clearly illustrates your inability to pay the full tax debt due. Highlight financial hardships, such as job loss, medical expenses, or other extenuating circumstances.
  • Offer a reasonable amount. Based on an accurate calculation of your reasonable collection potential (RCP), propose an offer amount that the IRS is likely to consider fair and reasonable.
  • Remain compliant with tax obligations. Ensure that you are up-to-date with all tax filings and payments, as ongoing compliance is a critical factor in the IRS’s evaluation process.
  • Consider hiring a tax professional. Engaging the services of a qualified tax attorney or enrolled agent can provide valuable guidance throughout the OIC process, increasing your chances of success.
  • Be patient and persistent. The Offer in Compromise process can be lengthy and complex. Remain patient and persistent. Be prepared to provide additional documentation or clarification if requested by the IRS.

By implementing these strategies, you can demonstrate your commitment to resolving your tax debt and increase the likelihood of the IRS approving your Offer in Compromise.

What to Do If Your OIC is Rejected

Despite your best efforts, there is a possibility that the IRS may reject your Offer in Compromise. If this occurs, it is essential to remain proactive and explore your available options.

  1. Request an appeal. You have the right to appeal the IRS’s decision by submitting a written protest within 30 days of receiving the rejection notice. This appeal process allows you to present additional information or arguments in support of your offer.
  2. Consider alternative resolutions. If your appeal is unsuccessful, explore other tax debt relief options, such as an installment agreement or Currently Not Collectible status. These alternatives can provide temporary relief while you work toward resolving your tax debt.
  3. Seek professional assistance. If you have not already done so, consider hiring a tax professional to guide you through the appeal process or explore alternative resolution strategies.
  4. Remain compliant. Regardless of the outcome, it is crucial to remain compliant with your ongoing tax obligations to avoid accruing additional penalties and interest.

Although rejection can be disheartening, it is important to remember that the OIC program is designed to provide relief to those who truly cannot pay their full tax debt. By persevering and exploring all available options, you can increase your chances of achieving a favorable resolution.

Consider Hiring a Tax Professional

Navigating the Offer in Compromise process on your own is possible, but working with a qualified tax professional can significantly increase your chances of success. Tax attorneys, enrolled agents, and certified public accountants (CPAs) with experience in OIC cases can provide invaluable assistance throughout the process.

Here are some ways a tax professional can help:

  • Evaluate your eligibility. A tax professional can thoroughly review your financial situation and determine if you meet the eligibility criteria for an Offer in Compromise.
  • Prepare a comprehensive application. With their expertise, tax professionals can ensure that your application is complete, accurate, and includes all necessary supporting documentation.
  • Negotiate with the IRS. Tax professionals have experience negotiating with the IRS. They can advocate on your behalf to increase the likelihood of your offer being accepted.
  • Provide guidance and support. The Offer in Compromise process can be complex and emotionally taxing. A tax professional can provide guidance, answer your questions, and offer support throughout the journey.
  • Handle appeals and rejections. If your initial offer is rejected, a tax professional can assist with filing an appeal or exploring alternative resolution options.

Although working with a tax professional may incur additional costs, the expertise and guidance they provide can significantly increase your chances of a successful outcome and potentially save you money in the long run.

If you’re interested in seeing if you’re eligible for an Offer in Compromise, call Tax Defense Network at 855-476-6920. We offer a free consultation and can help find the best resolution for your tax problem.