It is possible to reduce your tax debt to a fraction of what you owe, if qualified. The Offer in Compromise (OIC) program is an Internal Revenue Service (IRS) program allowing individuals owing tax debt to negotiate with the IRS for less than the full amount owed. The process of submitting an OIC is complicated and requires a great deal of skill, detail and compliance with the many IRS procedures, guidelines and regulations. It is essential to hire a knowledgeable, experienced tax attorney to submit an OIC.
There are three different types of Offers in Compromise. To obtain tax relief, your case must come under at least one of these types to qualify for an OIC settlement:
Doubt as to Collectibility. A taxpayer must show doubt as to whether the tax debt owed will ever be collectible by the IRS in full. The taxpayer must not be able to pay the tax debt by either liquidating assets or by following the guidelines for setting up a payment plan with the IRS. The IRS then determines the settlement amount by the following formula: (monthly disposable income x a number of months) + (the net realizable equity in taxpayer assets). This analysis takes into consideration certain cost of living standards set by the IRS for each taxpayer, according to family size and location. The amount of an OIC must be equal to the “realizable value” of your assets plus the amount of money that the IRS can collect from your future income. This is the most common way to settle your tax debt with the IRS.
Doubt as to Liability. A taxpayer must show doubt that the assessed tax is correct. This method has nothing to do with being unable to pay the tax. It applies when you think you do not owe the tax and you can prove that the IRS was wrong in assessing the tax against you.
Effective Tax Administration (ETA)/Exceptional Circumstances. A taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable. There is no contest to liability or collectibility. This OIC is used for the elderly, disabled or for people that have special extenuating circumstances. This is the least common approach for tax relief.
For taxpayers that qualify, an Offer in Compromise is the best deal you can get from the IRS in resolving your tax debt. It is crucial that your OIC is submitted properly by an experienced, knowledgeable tax attorney or the result could mean a rejection of your offer or even worse, you may be required to pay more than necessary. Delia Law is located in Los Angeles at 10880 Wilshire Blvd #1101. If you are experiencing tax problems with the IRS, please contact Delia Law for a free consultation for tax relief. You can do so by either completing our online form or by calling (310) 494-0100.