Offers in Compromise by Tax Attorneys
Sometimes we find ourselves in situations where we owe a large tax debt but simply can’t afford to pay, maybe due to an extended illness or a long-term unemployment situation. Whatever the situation may be, every taxpayer has the right to negotiate their tax debt with the IRS through a process known as an Offer-in-Compromise (OIC). If you would like to explore lowering (or even, in some cases, eliminating) your tax debt, give us a call and talk to a Business Law Southwest, LLC tax attorney.
What is an Offer-In-Compromise?
An Offer-In-Compromise or OIC is an agreement between a taxpayer and the IRS that settles a taxpayer’s tax liabilities for less than what was originally owed. An OIC may be available for taxpayers who cannot fully pay their tax obligations through an installment agreement or other means. To qualify for an OIC, the 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.
In most cases, the IRS won’t accept an OIC unless the amount offered by a taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay. The RCP includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. In addition to property, the RCP also includes anticipated future income less certain amounts allowed for basic living expenses.
Contact Business Law Southwest, LLC, to Learn More
Our tax attorneys stand ready to talk with you on the available options to work with the IRS or other relevant taxing authorities. Contact us now.
Do I Qualify for an Offer-In-Compromise?
The IRS may be willing to accept an OIC based in one of three circumstances:
- First, the IRS may be willing to accept a compromise if there’s doubt as to liability. A compromise meets this only when there’s a genuine dispute as to the existence or amount of the correct tax debt under the law.
- Second, the IRS may be willing to accept a compromise if there’s 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 may be willing to accept a compromise based on effective tax administration. An offer may be accepted based on effective tax administration when there’s 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.
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