Stanza Tax Services – IRS Offer in Compromise program

An “Offer in Compromise” (OIC) is a program that allows eligible individuals with an unpaid tax debt to negotiate a settled amount that is less than the total owed to clear the debt. It’s part of the U.S. Internal Revenue Service’s (IRS) collection process.

The IRS considers an OIC based on one of the following conditions:

1. Doubt as to Liability – There’s a genuine dispute about the existence or amount of the correct tax debt under the law.

2. Doubt as to Collectibility – The debtor’s assets and income are less than the full amount of the tax liability.

3. Effective Tax Administration – Full payment of the tax debt would either create an economic hardship or would be unfair and inequitable due to exceptional circumstances.

It’s important to note that not everyone is eligible for an Offer in Compromise. To qualify, a taxpayer must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees. The taxpayer then submits a detailed application (using Form 656, Offer in Compromise) to the IRS for review and approval.

Offer in Compromise (OIC) is a program that allows qualified individuals with an unpaid tax debt to negotiate a settled amount that is less than the total owed to clear the debt. Here’s a step-by-step process to apply for it, including form names, numbers, and time frames.

1. Evaluation of Eligibility: Before starting the process, establish if you are actually eligible to apply. Not everyone qualifies for this program, only those who genuinely can’t repay the full tax debt before the IRS’s collection period ends.

2. Understanding Your Case: Consider all the parameters that IRS uses to determine if an individual is eligible for an OIC. This includes ability to pay, income, expenses, and asset equity. IRS will generally approve an OIC when the amount offered represents the most they can expect to collect within a reasonable period.

3. Gather Documentation: Start collecting all the necessary financial documentation that you will need to prove your financial situation. This includes bank statements, pay stubs, valuation of assets, and details of living expenses.

4. Complete IRS forms: Here are the key IRS forms that need to be filled out when applying for an Offer in Compromise:

• Form 656: This is the “Offer in Compromise” form in which you will list your detailed financial information and propose your offer amount.

• Form 433-A (OIC): This is the “Collection Information Statement for Wage Earners and Self-Employed Individuals.” This form needs to be completed if you are an individual wage earner or self-employed.

• Form 433-B (OIC): This is the “Collection Information Statement for Businesses”. This form needs to be completed if your business is involved.

5. Submit Your Forms: Once all forms are complete and your financial documentation is collected, you can submit your packet to the IRS.

6. Paying the application Fee and Initial Payment: Upon submitting your application, you will also need to include the $205 non-refundable application fee. In addition to the fee, an initial payment is also required, depending on your choice of payment options (lump sum or periodic payment).

7. Waiting for the IRS response: After your package is received, the IRS reviews your info and determines whether to accept or reject the offer. This can take anywhere from six months to two years.

8. Appeal If Rejected: If your offer is rejected, you can appeal the decision within 30 days using Form 13711, “Request for Appeal of Offer in Compromise”.

Need assistance with this process?  Call us at 510-255-9194 to schedule a consultation.