Broker Check

Offer in Compromise

Do you owe the Internal Revenue Services (IRS) more than you have the ability to pay? If so, you may qualify for an Offer in Compromise (OIC). The IRS allows taxpayers to repay less than what is owed if the taxpayer meets its stringent criteria in order to apply for the OIC. The taxpayer submits their OIC application and the IRS reviews your income, expenses, ability to pay, and assets. The IRS also takes into consideration the impact that paying the full amount the taxpayer owed would lead to any excessive financial hardship. Although many taxpayers have questions about the IRS actually reducing their tax debt, it is more economical for the IRS to settle out a tax debt with a taxpayer who cannot full pay than to continue spending time, money, and resources collecting the tax debt.

It is important to understand that an Offer in Compromise is not appropriate for every taxpayer that has delinquent taxes. The IRS makes the OIC process very difficult which is why LifeCycle Tax and Wealth Management’s experience can be beneficial to you, the taxpayer. Typically, the IRS does not accept proposals for less than you owe unless it reasonably feels the taxpayer cannot pay. The key here is reviewing all options and ensuring you meet the eligibility requirements for an OIC before going through the process. The taxpayer can’t be in any bankruptcy proceedings and must be up to date with all payment and filing requirements. Let one of our Enrolled Agents help you decide if an Offer in Compromise is right for your situation.

The Offer in Compromise process includes providing basic information about the taxpayer as well as information about your income, expenses, and assets. The IRS requires every form of income to be included in the information.

A few income items include:

  • W-2 wages
  • Business profits
  • Self-employed income
  • Rental income
  • Passive business income
  • Child support
  • Alimony

The expense section will include all expenses that are paid regularly. A few expense items include:

  • Mortgage/rent
  • Utilities
  • Alimony
  • Child support
  • Insurance
  • Childcare

The assets may include:

  • Fair Market Value of your primary residence
  • Retirement accounts
  • Resale value of vehicles and other personal belongings
  • Stocks/bonds/cryptocurrency
  • Bank account totals

In 2012, the Internal Revenue Services announced its Fresh Start Program. The Fresh Start Program included extensive changes like expanding the Offer in Compromise program, making it easier for taxpayers to qualify for an OIC.  This program provides taxpayers with a different installment structure that allows them to avoid tax liens and additional federal reviews. The Fresh Start Program revised the calculation for taxpayer’s future income. A few changes include:

  • Allows taxpayers to include student loan payments and payments on delinquent state and local tax debt as necessary expenses
  • Increased the allowable living expenses that a taxpayer could claim

The IRS changes to the Fresh Start Program allowed many taxpayers that previously did not qualify for an OIC to now qualify. The Fresh Start Program’s changes to expand eligibility will not necessarily remain this way. The negotiation of an Offer in Compromise is still not a simple process. It is important to have an educated representative to represent you through the Offer in Compromise process. The staff at LifeCycle Tax and Wealth Management is here to help you find the most strategic solution for your situation to settling your overdue tax bill.