April 15th of every year is viewed by those who owe the IRS more money as the antithesis of Christmas. Jolly Old St. Nick has a frown on his face. However, don’t be dismayed for too long. There is possible relief on the horizon.
An Offer in Compromise (OIC) allows a taxpayer to resolve a tax debt by convincing the IRS to accept less than the full amount owed. If you feel you shouldn’t be liable for the assessed amount of a tax bill, or if you’re suffering from financial difficulties that are preventing you from paying your tax debt, submitting an Offer in Compromise to the IRS might be the right solution for you.
Reasons for the Offer
The IRS may accept an OIC based on one of the following reasons:
- First, the IRS can accept a compromise if there is doubt as to liability. A compromise meets this criteria only when there's a genuine dispute as to the existence or amount of the correct tax debt under the law.
- Second, the IRS can accept a compromise if there is doubt that the amount owed is fully collectible. Doubt as to collectibility exists in any case where the taxpayer's assets and income are less than the full amount of the tax liability.
- Third, the IRS can accept a compromise based on effective tax administration. An offer may be accepted based on effective tax administration when there is no doubt that the tax is legally owed and that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.
Forms to Use
- When submitting an OIC based on doubt as to collectability or effective tax administration, taxpayers must use the most current version of Form 656, Offer in Compromise (https://www.irs.gov/pub/irs-pdf/f656b.pdf), and also submit Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals (https://www.irs.gov/pub/irs-access/f433aoi_accessible.pdf), and/or Form 433-B (OIC), Collection Information Statement for Businesses (https://www.irs.gov/pub/irs-pdf/f433boi.pdf). A taxpayer submitting an OIC based on doubt as to liability must file a Form 656-L.pdf, Offer in Compromise (Doubt as to Liability), instead of Form 656 and Form 433-A (OIC) and/or Form 433-B (OIC). Form 656 and referenced collection information statements are available in the Offer in Compromise Booklet, Form 656-B.pdf (https://www.irs.gov/pub/irs-pdf/f656b.pdf).
So, when April 15th rears its ugly head, don’t panic. Consider whether an IRS Offer in Comprise is a viable option for you and proceed accordingly.
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