An offer in compromise (OIC) is a form of tax relief for taxpayers struggling to pay their taxes in full. It allows them to offer the IRS an amount that is less than the total amount they owe, and if the offer is accepted, it would be considered paid in full. An OIC can provide a viable solution for those who cannot pay their taxes in full and would like to avoid bankruptcy.
The need for offer in compromise
The offer-in-compromise program was established by the IRS to provide taxpayers with a way to settle their tax debt without filing for bankruptcy or going through other drastic measures. It is also an attractive option for those who have substantial equity in assets that they could use to make payments toward the debt but cannot afford to liquidate them.
To qualify for an offer in compromise, a person must show that they are unable to pay their tax debt in full and they must demonstrate that their offer is the most they can pay. This requires a rigorous review of all financial information including income, assets, liabilities, and expenses. The offer in compromise must reflect the taxpayer’s ability to pay, otherwise known as reasonable collection potential.
The offer amount must also be equal to or higher than the IRS’s estimated net realizable value (NRV). If the offer is less than NRV, it may not be accepted. If a taxpayer qualifies for an offer in compromise, they must pay their offer amount in full within five months of the offer being accepted by the IRS.
The offer in the compromise program has been successful for many taxpayers facing tax debt issues. It allows them to be relieved from a considerable portion of their debt and allows them to start fresh financially.
It also provides an alternative to bankruptcy, which could have long-term consequences. While the offer compromise program can offer taxpayers a great deal of relief, it is important to remember that not everyone qualifies for this type of tax relief, and it should be pursued only after carefully considering all other options.