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OIC Facts: The Truth About Offer in Compromise

OIC Back Taxes Facts
OIC or Offer in Compromise, is an IRS tax debt resolution program everyone knows about, but few are accepted into. In an attempt to clear up many common misconceptions about the OIC program, we have listed the details below.

How to Qualify for an OIC

In order to qualify for an OIC, the IRS assesses a taxpayer's Reasonable Collection Potential (RCP), or the amount they are able to pay on your tax debt including: assets, bank accounts, property, and anticipated future income. The IRS will not accept an OIC if it believes the taxpayer is able to pay the debt in full or through a payment agreement. However, the IRS will accept an OIC under certain circumstances:

  1. Doubt as to Collectability
  2. Doubt as to Liability
  3. Effective Tax Administration

Doubt as to Collectability

The IRS has serious doubts the debt could ever be paid in full owed within the collection period. This means the taxpayer's monthly income does not or barely covers basic necessities. The IRS has also concluded there are no assets or accounts to be realized and so the IRS would likely accept their OIC application.

Doubt as to Liability

A legitimate doubt exists the tax liability is correct. According to the IRS website, possible reasons for this could include:

  • The examiner made a mistake interpreting the law
  • The examiner failed to consider existing evidence
  • There is new evidence

This OIC circumstance could assist with unpaid payroll taxes for former business executives.

Effective Tax Administration

There is no doubt the tax is accurate and there is a possibility to collect the owed tax debt in full, but an extraordinary circumstance exists that allows the IRS to accept an OIC. To be eligible for an OIC on this basis, a taxpayer must prove that pursuing collections would create an economic hardship.This OIC clause protects taxpayers who have extreme medical obligations, such as serious long-term illnesses, special needs children, or necessary surgery. This OIC reason can also protect those who recently lost their employment and may need their other assets to offset the loss of income.

OIC Payment Plans

If the IRS does accept the OIC application, there are only three payment options to enter into. None of the OIC payment choices are designed to be a "pennies on the dollar" option. Also, a $150 application fee and an initial sum are required before an OIC payment decision is made. The three OIC payment options are:

  • Lump Sum Cash OIC
  • Short-Term Periodic Payment OIC
  • Deferred Periodic Payment OIC

Lump Sum Cash OIC

This OIC payment option gives the taxpayer an offer of no less than 20% of the total debt and must be paid in five or fewer non-refundable installments.

Short Term Periodic Payment OIC

The proposed amount is paid within 24 months in non-refundable payments from the date the IRS received the taxpayer's offer in this OIC payment option. Keep in mind, regular payments are expected while waiting for acceptance into the OIC program.

Deferred Periodic Payment OIC

The taxpayer agrees to pay in proposed installments for the remainder of their statutory period with this popular OIC payment option. This may result in paying less than the full amount owed based on the time left to pay, but the IRS can always adjust the OIC payments if it believes the taxpayer's financial situation has changed during the OIC payment schedule.

The OIC program may fit for some people who truly need assistance, or have legitimate and verifiable reasons why they are unable to pay, but for most, the IRS believes it can collect the full debt amount and therefore, will not accept an OIC. Learn more about the OIC program by contacting us today! Let us review your case to determine if you would be accepted for an OIC. If your situation doesn't qualify for an OIC, we will help you find an affordable IRS installment agreement. Remember to speak with a professional before you apply for an OIC.

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