The IRS offers several safeguard programs for delinquent taxpayers. The IRS designed these programs for taxpayers in financial distress and for taxpayers who would suffer by the strict interpretation of the tax law.

One program is Offer in compromise or OIC. This program includes plans for taxpayers who can demonstrate that they face problems involving the ability to pay, fairness or liability.

The burden of proof rests with the taxpayer, who needs to make a payment offer, which the agency is free to reject. While it is easier than it once was to have an offer accepted, filling out the forms is no easy.

The process takes 12, 18, 24 months for a relatively straightforward offer. If the agency does not meet that 24-month deadline, the offer is deemed accepted. Until then, the IRS can look at whether a taxpayer’s ability to pay has improved since the offer was made.

The key seems to be offering what the taxpayer can pay, not how much is owed. Along with the forms, taxpayers claiming a hardship or doubt that a debt can be collected must submit some money, as well as the fee, with the application.

What is an Offer in Compromise? 

An Offer in Compromise (OIC) is an agreement between the taxpayer and the IRS, which allows the person who owes money to the tax authority to settle their debt for less than the full figure due. It is only applied when the individual cannot pay the full amount or if paying that amount will put them in unreasonable financial hardship. In order to make a decision on any OIC application the IRS looks at the applicant’s ability to pay, their income, expenses and assets.

How to Qualify? 

In order to be eligible to apply for Offer in Compromise your tax returns must be up to date, as well as your tax payment requirements. Also, you must not be in bankruptcy proceedings. If you cover all this, wait to celebrate. Even if you qualify by the rules, that doesn’t necessarily mean that your application will be accepted and you will be granted an OIC.

The most common mistake people do when calculating their equity is that they put a figure that is too high for the IRS to consider Offer in Compromise as an option. But below you can find some pointers on how to successfully get your application approved.

Take advantage of the Fresh Start Initiative

In order your offer to be accepted it needs to correspond to the realizable value of your assets in addition to your future income. With the Fresh Start initiative, for amounts that would be paid in 6 months or less the IRS will only look at your future income one year ahead. For debts that will be paid over a period of 6 to 24 months, your future income for the next 2 years will be taken into consideration. 

Make Sure Your Taxes are Current.

If you have any old tax returns that you have not filed, you must do that before you even think of applying for OIC. Failing to do that will be the easiest and quickest way to get rejected.

Don’t Put Your Tax on Hold 

It’s a common scenario with many people to acquire more debt during the collection process. It is a mistake and not only increases the amount you owe, but it also decreases your chances of getting an OIC.

Do Proper Due Diligence 

If you decide to get your application done quickly without being too careful about the numbers you put in, you are making a big mistake. The IRS is not interested in seeing any rough figures, they want exact numbers and proper calculations. You need to get it right from the first time because if you don’t, an application rejection is guaranteed and you will have to start all over again, paying the application fee and putting another down payment. That’s already getting your financial situation worse.

Don’t skip the fees 

Speaking of the fees you need to pay, it is very important you don’t forget to include the application fee $186 and the non-refundable initial payment because they will directly affect your tax liability. In your application, you can specify which tax year and debt you want to apply the fees to.

Don’t Try to be Comfortable

Another common mistake is applying for Offer in Compromise for the sake of not putting too much pressure on their current financial situation if they paid the debt in full. If the IRS knows that paying what you owe is not going to put you in bankruptcy or leave you and your family in financial distress, you will not be granted OIC. This option is reserved for people who genuinely have no way of paying their debt, even after they’ve taken loans from friends and relatives. Your chances of being approved are highest when you can prove that you’ve done all you can do but your income is not enough to cover your basic living needs.

Your Reasons Matters

It is crucial for your application to provide good reasons as to why you need your Offer in Compromise to be approved. Unfortunately, things like “we are in recession” and “my business is not doing so well at the moment” will not get you the outcome you desire. IRS officers will look at the probability of your financial situation bettering in the future and base their decision on that. However, if you quote reasons like dependent care, substance abuse, reduced possibility of increasing income due to old age, disabilities and serious health problems will be considered as valid reasons for granting you an OIC.

Don’t do it Yourself 

If you are in a really hard financial situation it looks like the most logical thing is to try and deal with the application yourself without seeking professional help with it. In reality, though, those few buck you will save on a good CPA charges, can cost you a lot more if you get things wrong. And not only that, even if you manage to get your application on point, don’t forget that the IRS officers will always put the interest of the government before yours. They are well-experienced in pressuring taxpayers to their limits when it comes to collecting debt, so you are better off having a professional financial adviser on your side who will not be easily intimidated by the IRS workers.

We hope this gives you a base on where to start from if you want to write off some of your debt. If you need more clarification and help with your application, you can always contact us for best results.