Hyden, Miron & Foster, PLLC Law Blog

Friday, August 18, 2017

What is an Offer in Compromise and How Can it Help Me?

Having a significant tax bill hanging over your head can make life more difficult than it needs to be. Fortunately for some, the 2012 IRS Fresh Start Program may provide some financial relief. Through the Fresh Start Program, qualified taxpayers can obtain what’s known as an Offer in Compromise (OIC) to reduce their tax debt owed. IRC 7122 empowers the IRS to settle tax debts with an agreement to reduce the tax burden owed by the taxpayer.  There are requirements that you must meet in order to obtain an OIC, so it is best to work with an experienced offer in compromise lawyer in creating your application.

Who is Qualified to Obtain an OIC?

There are significant hurdles to overcome when seeking an OIC, and only about 40% of applications submitted are accepted. The IRS has many requirements that a taxpayer must meet to qualify for an OIC. First and foremost, the taxpayer must have filed all required tax returns for the year in question, as well as any estimated tax deposits for the year. If these requirements are not met, the application will be returned to the sender without consideration.

Once an application is received, the IRS will consider the taxpayer’s financial situation to determine whether payment of the whole tax amount will create a financial hardship. The IRS will consider things like:

  • income
  • expenses
  • ability to pay
  • asset equity

In general, the IRS will accept an offer if it represents the highest amount that they can conceivably collect in a short time period.

If you are currently involved in a bankruptcy proceeding, the IRS will not approve your application because outstanding tax obligations must typically be addressed within the bankruptcy case.

The OIC Process

Once your application is completed, the taxpayer must submit it, along with an application fee of $189. In some circumstances, the IRS may refund the application fee if the application is approved, upon request. In addition, the taxpayer must choose a payment option and the first payment with the application. The IRS provides two payment options with an OIC:

  • Lump Sum – requires an initial payment of 20% of the offer and the balance paid in less than 5 payments within less than 5 months of the acceptance date.
  • Periodic Payments – requires an initial payment with the application and the remaining balance to be paid within 24 months, as outlined in the offer.

All proposed offers must be paid in accordance with the offer while the IRS is contemplating your offer. If payments are not made during this time, the IRS will reject your offer.

An OIC will allow you to significantly reduce your tax debt if you qualify and follow the IRS process. For more information about the OIC process, take a look at IRS Form 656 Booklet. Before you fill out that application, talk with an experienced Arkansas tax attorney at Hyden, Miron & Foster, PLLC today to set up your free consultation.


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