The Truth about settling back taxes

The Truth about settling back taxes

The IRS Offer in Compromise (OIC) is a legitimate program that enables taxpayers to settle their tax debts for less than they owe. However, this program is not as simple and reasonable as all the tax ads make it sound.  Very few taxpayers actually qualify for OIC because the IRS believes they can pay back their back taxes over time with their assets and disposable income.  The process of applying for, and justifying one’s need for an OIC is complex, lengthy, and requires the help of a tax professional. 

There are three types of OIC:

  1. Offer in Compromise, Doubt as to Collectability – The most common of the three, this OIC is appropriate for those that can’t pay back their tax debt and want to settle for less than they owe.
  2. Offer in Compromise, Doubt as to Liability – Used when a taxpayer disagrees with the amount of the tax debt owed.
  3. Offer in Compromise, Effective Tax Administration – This is for taxpayers who can pay the debt, but would endure undue hardship if they did, or there are extenuating circumstances.

Facts about filing an OIC:

  • The IRS will only accept OIC’s from taxpayers that are current and compliant in filing their taxes.
  • A taxpayer must be current with their tax withholding and estimated tax payments, and must prove that they won’t owe taxes again when filing the next year’s return.
  • The OIC is not about negotiation, but about proving one’s case (inability to pay, tax is incorrect, or extenuating circumstance).
  • The taxpayer must be able to pay the offer.

Before filing an Offer in Compromise, it is vital to get proper advice and consultation from tax professionasls because OIC’s are not the right solution for most taxpayers. The process can take time and, if denied, the taxpayer will be in a far worse position than before.

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