The Offer In Compromise: Is It For You?

offer in compromise

The IRS offers several repayment options for taxpayers, including the Offer In Compromise. Is it for you?

Note: The content in this post is not intended to replace the advice of a licensed tax professional. If you are facing a tax-related hardship, consult a tax professional to determine the best option for your unique circumstances

Facing a sizable tax bill is unsettling, especially if you lack the means to pay it. The Offer In Compromise (OIC) is one of the payment options available. Here is a brief look at the OIC and what it can and can’t do for you.

The OIC is designed for taxpayers who have the means to only pay a portion of their total tax bill.

Requirements

You’ll need to file IRS form 656, along with the $186.00 filing fee.

Generally you’ll have between 11-24 months to pay the agreed-upon amount.

The IRS will take into consideration your ability to pay, your income/assets and asset equity when determining your eligibility for OIC.

Eligibility

The IRS has designed an eligibility screening tool that you should use before applying for the OIC program. If you are eligible, you will need to complete the OIC form, (Form 433-A for individuals or form 433-B for businesses).

You’ll need to submit the forms along with the $186.00 filing fee and your initial payment.

Payment options

  • The IRS offers several different payment options:
  • Lump sum in cash
  • Periodic payments, in which you pay the initial amount and then make monthly payments while the IRS evaluates your application.
  • If you meet the low-income guidelines, you don’t need to submit an initial payment or the application fee, and you won’t need to make monthly payments while the IRS evaluates your offer.

If your offer is accepted:

You must meet all terms of the offer

Any tax refunds due during the calendar year will automatically be applied to your tax debt

Any federal tax liens will not be released until you have satisfied the OIC terms

If your offer is rejected, you and your tax professional have the right to appeal. You can file the Request for  Appeal form within 30 days in order for your appeal to be considered.

Facing a significant tax debt can be stressful. It’s always best to enlist a qualified tax professional when dealing with a sizable tax bill, especially if you lack the means to pay it in full.

Your tax pro can help you determine the best payment plan for your circumstances, and they can negotiate with the IRS on your behalf.

If you are in need of a licensed tax pro or if you are facing a large tax debt, visit us at indealtaxsolution.com and get in touch by using any of the available options under the “Contact” tab on the menu bar.

You don’t have to go it alone. We can help.

Life After Bankruptcy: Filing Your Taxes

Photo: Melenchon
Photo: Melenchon

Bad things can happen to good people: Illness, job loss, catastrophic medical expenses and natural disasters can wreck havoc on individual finances. In some cases, the only solution is to file for bankruptcy protection.

Bankruptcy not only affects your finances and credit rating, you’ll also have to take a different approach to filing your taxes. Here’s a brief look at those changes. Remember, if you are facing bankruptcy, it’s best to consult with a bankruptcy attorney for advice regarding your individual circumstances.

Once a consumer (also known as the debtor) files for bankruptcy, they are in effect turning over their affairs to a trustee. The trustee will then act on the debtor’s behalf in managing any non-exempt assets used for repaying creditors.  This arrangement forms an estate, much like an estate for an incapacitated or deceased person.

The debtor will file their customary 1040 form, and either the debtor or the trustee will file the 1041 form, which is the estate’s tax return.

Chapter 7: This form of bankruptcy is for individuals and married couples. In this case, there will be no trustee, since there are no assets that can be used to repay creditors. The tax scenario changes in that the debtor will not only file their 1040, they will also file their 1041 form on behalf of the bankruptcy estate.

Chapter 13: This is also for individuals and couples who have non-exempt assets that can be used for repaying creditors. The trustees manages these assets and utilizes them for repayment. Any tax refunds, for example would be used for repayment to creditors via the bankruptcy estate each year until creditors are paid off.

You will file your regular 1040 form, and the bankruptcy trustee will file the 1041 form on behalf of the bankruptcy estate.

Although post-bankruptcy tax filings are best handled by a qualified tax professional, learning about a bankruptcy’s impact on your tax scenario will hopefully demystify the process for you.

The decision to file for bankruptcy is never easy, and it takes careful consideration under the guidance of a qualified bankruptcy attorney.

By filing on behalf of yourself and the estate, there is less chance for errors or omissions when it comes to filing taxes in the wake of a bankruptcy filing. Plan carefully, enlist a bankruptcy attorney and a tax advisor, and you can begin to rebuild your finances over time.