How to Settle IRS Debt with Offer in Compromise (OIC)?
The Internal Revenue Service (IRS) will work with customers who have fallen behind concerning the taxes, yet the first one should demonstrate whether he/she is qualified or not. Let us understand IRS offer in compromise (OIC) and discover what the passing norms are for the “offer in compromise” program.
Defining the term: Offer in Compromise
An “Offer in Compromise” is still an unexplored secret yet astoundingly successful way, which so many individuals in a tough situation with the help of an IRS agent, tend to wipe out a huge amount of money in debt obligations. It is a government program that permits any given individual to settle debt obligations much lesser than exactly what they owe, and this is great news for those belonging to the low-income bracket.
Pre-Qualifiers for OIC
Since the taxes are so significant for the government and public costs, there are severe pre-qualifiers to be qualified for a tax settlement. Henceforth, before proposing the IRS Offer in Compromise, it is necessary to take a look at the qualification requirements, what IRS considers and finds suitable.
The base premise of qualification is the justification behind mentioning a trade-off. The IRS will possibly think about the application for an offer in compromise if it is for one of the below reasons:
- There is a question concerning whether the amount set by IRS is what an individual owes.
- There is a question regarding whether the debt is completely collectible. This implies the income and assets do not exactly sum up to the amount an individual owes.
- The debt is right, and one can cover the obligation, yet doing it in full would cause unnecessary monetary difficulties. This is called effective tax administration.
Assuming, an application for an offer in compromise is dependent on the second or third explanation, the IRS will consider different variables. To decide if an individual can pay, and how much amount to be paid, the IRS for the most part checks out four parts:
- Individual capacity to pay
- Individual income
- Individual expenses
- Individual assets
As a rule, the IRS acknowledges offers that are equivalent to the greatest amount an individual had the option to pay within a sensible time frame. It won’t think about the offer assuming if any of the below reasons are valid:
- An individual is in the open bankruptcy proceedings
- An individual has not filed for federal tax returns.
- An individual has not paid the required estimated tax payments.
- An individual is independently employed with a workforce staff and has not submitted needed federal tax deposits.
Here are signs of an ideal applicant:
- An individual is a retired person on fixed pay.
- An individual has some legitimate issues legally with the IRS.
IRS hopes to settle debt obligations as opposed to getting stuck in a lawsuit with the circumstances below:
- An individual is confronting the insolvency situation, however, a more serious issue is unpaid taxes.
- An individual can’t bear full taxes liability, as doing so leads to financial problems.
- An individual meets federal’s low-income rules such as $51,950 for a group of three in a family, under $73,550 for a group of five in a family, etc.
Minimum Offer Amount
An individual needs to propose as little as could be expected. It is quite difficult.
How little of a proposition the IRS will acknowledge, relies upon the monetary condition, and how an individual reveals that exhaustively on Form 433-A (for breadwinners and the independently employed) or 433-B (for organizations).
Other than expenses and incomes, an individual must be ready to uncover:
- if defaulted on any kind of loans
- if holding a life insurance policy, or a beneficiary of estate or trust, to reveal how much and when to get cash
- if there is a safe deposit box to show
- if there are investment ledgers, speculations, accessible credit, insurance policies with a value in cash
- if there are intangible assets like copyrights, patents, domain names; in addition to tangible assets like personal vehicles and real estate
The IRS for the most part won’t permit to count school or tuition costs, donations or charity, voluntary retirements, or unsecured debts payments. Whenever done that, the base estimation goes like this.
The IRS tends to estimate the accessible assets in addition to a year to two years of the income above the relevant adequate costs during that course. If expenses and debts surpass the incomes and assets, the IRS will request an individual to pay a sum.
Presenting an Offer
When, as an individual, you apply for an offer in compromise, you need to fill up forms and include them with the application. In addition to the real deal, you should put together a collection information statement explanation for organizations and people.
As a rule, include a $150 application charge, as the primary payment of your proposition. Assuming that you plan to pay one single lump sum, your installment needs to be 20% of the total sum.
Assuming your proposition has been approved, you should square off the remaining amount in five or fewer installments. If you plan to pay through an installment series, your first installment needs to be the monthly sum proposed in your arrangement.
Send payment installment on the first month until you get a notice from the IRS. Assuming your offer has been approved, keep making the scheduled installments until the balance is settled completely.
This should take something like two years after the offer is approved. You don’t have to pay an expense assuming that your proposition depends on the uncertainty of liability.
You even need not pay the application charges or down payment initially if you meet the guidelines related to Low-Income Certification rules. This relies upon the size of your family and your family’s month-to-month income, other than where you live.
Factors behind Rejection of an OIC
One has to be extremely cautious when presenting with an OIC. Normal reasons behind rejection are:
- The proposition is excessively low, and the Government believes it can get installment in full from an individual’s future income earnings – in which case the IRS will listen for a minute as it figures what can be paid.
- An individual fails to give sufficient data validating the monetary condition.
- An individual fails to keep up with the taxes for the current year, since lagging on settling taxes, leads to a poor risk to pay the OIC.
- An individual has been sentenced for a genuine crime.
Appealing a Rejection
The IRS acknowledges merely half or even less than that of the offers in compromise it gets, so it is highly likely of an offer to be dismissed. There are two methods for reacting to IRS dismissing an OIC.
One is to resubmit an offer taking aid from an IRS agent. Assuming that an individual does it within a month from the main proposition, another Form 656 isn’t required, and only a letter is required stating how the much-increased amount of money is being offered.
Assuming it takes more than a month to resubmit, or essentially change the proposition, Form 656 is to be filled up. To appeal the rejection, Form 13711 needs to be filled within 30 days of the rejection letter, recognizing which parts of rejection are questioned stating the reasons for the same.
Alternative Solutions for Clearing Debt
An IRS offer in compromise is surely the most ideal choice for disposing of debt obligation an individual can’t stand to pay. However, there do exist different choices for decreasing monetary weight and getting back on track.
Assuming, an individual does not qualify for an offer in compromise, or in case an OIC is rejected, there are debt arrangements like consolidation and settlement. They do help save on different debt obligations, freeing up money to square off IRS obligations.
Consolidation and Settlement
As it is commonly seen, debt consolidation and debt settlement are two terms frequently connected, however, they are two distinct ways of dealing with a debt obligation. Debt consolidation implies taking out a solitary loan to cover payments due to numerous creditors.
Debt settlement implies offering an amount in a lump sum to a creditor that is much lesser than what is owed. Nevertheless, there are ways to manage the cost of the bills, for which one needs to search out proficient IRS agent assistance giving answers to debt obligation issues.