An offer-in-compromise is an effective way to settle your tax debt for less than the amount you actually owe.
There are three types of OICs.
In order to be considered for an OIC settlement, you have to qualify for one of these three conditions:
- Doubt as to Collectability:
You can show that the debt can’t be collected in full by the IRS under any condition.
- Doubt as to Liability:
You can show a reason for the suspicion that the demanded liability is correct.
- Effective Tax Administration:
This type of OIC is different from collectability or liability, under this, you have to demonstrate a situation stating your economic hardships if you settle any outstanding taxes.To give you a better understanding of all three OICs, we have elaborated on them in detail below:
- OFFER IN COMPROMISE, DOUBT AS TO COLLECTABILITY
It is a pretty straightforward type of Offer in Compromise. This is appropriate for people who can’t pay their taxes and want to settle for a payment that is less than the amount they owe.
In this type of OIC, Initial payment levels may be based on the specific offer. There are two types of payment approaches, which includes:
- Lump Sum Equation (To be paid in 5 months or less)
This payment approach mandates an initial payment of twenty percent of the total amount. In the event your offer is accepted, you’ll need to cover the outstanding amount in the next five payments.
Disposable Monthly Income * 12 + Net Realizable Equity = Settlement Amount
- Periodic Payment Equation (To Be Paid In Between 6 and 24 Months)
According to your circumstances, you may be allowed to pay off your full debt in monthly installments. The complete process starts with an initial application and endures through the IRS consideration period.
Disposable Monthly Income * 24 + Net Realizable Equity = Settlement Amount
To benefit from OIC Doubt as to Collectability, there are a set of eligibility requirements you must qualify.
Here are some of the factors the IRS investigates while negotiating your “doubt as to collectability” claim:
- Any bank account, trust funds or retirement accounts you have not disclosed to your revenue officer.
- Expensive assets such as a house or car, which the government can ask you to sell.
- Any expensive asset which you have given to close family members in order to refrain from Government tax.
- Payroll records to verify you are being paid what you claim.
- Testimonies from family, friends, relatives, and neighbors to find out your true financial state.
- OFFER IN COMPROMISE, DOUBT AS TO LIABILITY
It is an IRS Settlement option that can be chosen if you do not believe the back taxes you owe are correct. If there was an error made by the IRS, your accountant, or you, the Offer in Compromise Doubt as to Liability can be filed to correct the error and reduce the calculated taxes.
Situations, Where Doubt As To Liability May Occur, Are:-
- A mistake in interpreting the tax law.
- Failure in considering the evidence that was collected by the examiner.
- The emergence of new evidence that established a change to taxation.
- OFFER IN COMPROMISE- EFFECTIVE TAX ADMINISTRATION
If you can pay the tax you owe, but it would cause unnecessary troubles, or there are other palliative circumstances.
Now, in layman’s terms, ETA OICs are available when it would be inequitable for you to pay the taxes because doing so would create further economic hardship for you and your dependents.
While investigating the plea of Effective Tax Administration, the IRS officer looks for the following factors:
- Your age, and employment status.
- Number, age and health of your dependents.
- Living costs where you stay.
- Other expenses like education, medical, etc.
Situations, Where An Effective Tax Administration May Be Applicable, Are:-
- You have a prolonged illness that can result in tremendous financial hardships.
- Your income gets exhausted in taking care of dependents that do not have the resources to upkeep themselves.
- You have assets that can’t be rented.
An OIC is a spectacular way of reducing taxes, but we never know what the IRS is thinking. However, with the aid of a good tax resolution company your chances of qualifying in OIC increase.If you have a problem with delinquent taxes, contact EA Tax Resolutions to get the tax settled through an OIC.
In our modus-operandi, initially, we ensure you’re eligible. Then, we validate your offer and deliver proof to support our offer. Besides this, we are always ready with some alternative pathways. We have a successful proven track record of helping thousands of taxpayers with their tax problems.