How an Offer in Compromise with the IRS works

IRS Offer in Compromise OIC agreement and pen.

You had probably never heard of an Offer in Compromise, or OIC, with the Internal Revenue Service until you got behind on your federal taxes. Now, with a tax debt looming over your head and the IRS threatening collection actions that could cripple you financially, you’re desperately seeking some kind of relief.

Could an Offer in Compromise work? OICs are essentially agreements between you and the IRS that can reduce your tax liability and suspend collection efforts. You agree to make payments on your debt over a specific period at a reduced rate, and the IRS agrees to suspend collection efforts and forgo the remainder of your debt.

There’s no guarantee that an OIC will be accepted by the IRS. Roughly 16 million people and 3 million businesses have significant unpaid federal tax debt. However, only about 25,000 OICs are accepted in any given year. After all, the IRS would generally prefer to get everything that you owe — not just a partial payment.

When can you qualify for an OIC? In general, you need to show the IRS that one of the following is true:

  • There’s doubt about the amount you owe (which could make collection harder for the agency).
  • There’s doubt that the IRS can otherwise get everything that’s owed in a reasonable time through ordinary collection efforts (because you don’t have it).
  • Forcing you to pay the full amount would be unfair and financially devastating for some other reason (known as ineffective tax administration).

Even if you meet one of these requirements, you have to submit to a lengthy process that will dig deep into your finances. No OIC is a sure thing. Find out how an attorney with experience handling tax debt issues can assist you.

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