Offer in Compromise: Answers to Most Common Questions

Listed below are some of the frequently asked questions that we receive about the IRS Offer in Compromise program.

OIC program: scam or genuine?
Offer in Compromise is a real program. But, some tax firms misuse this program by reeling in individuals with fake guarantees and market themselves as having the ability to settle their tax debts for “pennies on the dollar”. The advertisers want people to believe that they've some government influence or power and guarantee to help with paying off their tax debt for 90% less than they owe. These rip-off companies utilize this program as bait for getting citizens to hire them. However the IRS did nothing as of yet to get rid of these tax frauds.

Many Offers in Compromises failed to benefit people due to either: a) they hired an inexperienced tax company (who'll do nothing except cashing on huge fees) to represent them or b) they aren't qualified to apply for an OIC. By having a professional representation, some might have got eligible for a much better deal with the Internal Revenue Service.

Will the IRS keep my tax refunds if my offer in compromise gets approved?
Yes, the IRS will keep any refunds while your OIC is being processed, and also can keep any tax refunds in the year your offer is approved.

What will happen to the federal tax lien?
As soon as an Offer in Compromise is paid completely, the IRS tax lien that was filed against you will automatically be released. It normally takes about two months for this to take place.

Can I prepare and submit an OIC myself?
This is the point. Filling out an Offer in Compromise will never be like preparing a 1040 form. The IRS will invariably look for all possibilities to decline an Offer in Compromise before they accept it. Anything you declare in the form will be questioned. It's much more like an audit and the government is just interested in two things to settle your case: 1. your earnings and 2. your assets.

Exactly how much should I offer in an Offer in Compromise?
Naturally, taxpayers want to pay as low as possible to settle the money they owe. But the amount will be based on your Reasonable Collection Potential (RCP). Calculating the RCP is the most important aspect in determining the outcome of your application. Now your question is, “What number I should put down in the OIC form 656?” This is difficult to answer since there are various aspects that’s need to be taken into consideration. It is advisable to leave this task in the hands of an experienced professional because they're the best person to figure out the minimum amount that will make the IRS to accept it.

Can payroll taxes be paid out with an OIC program?
Yes, a business owner could settle payroll taxes and penalties through an OIC program. However the procedure is far more challenging and in order to strike a deal, they need to get professional guidance from a tax specialist.

Can trust fund recover penalties be settled with an Offer in Compromise?
Yes, you can file an Offer in Compromise to settle your back trust fund taxes that you have to pay to the IRS.

Any IRS Offer in Compromise tips?
Right after acceptance of your Offer, one should comply with tax filing and payment requirements for five years. Fail to do this will lead to your offer getting declared as default and your entire tax debts will come back.

Errors to Avoid in the IRS Offer in Compromise Program

Getting an Offer in Compromise accepted is not an automatic process. It is quite difficult but if done properly, your offer may get qualified for approval. 

Even if you are qualified to apply for an Offer in Compromise, there is no guarantee that your Offer will be approved. You should stay away from tax firms that guarantee your OIC acceptance because they are not working to your best interests. Our law firm won't guarantee that to our valued clients because we can’t guarantee.  However, in the following paragraphs, I will tell about what you can do to increase the likelihood of getting your OIC accepted. Yes, it can achieved.

• Are you current? If self employed, did you completed making payment on the latest estimated quarterly tax? If you are a W-2 employee, is the withholding correct? If not, the government will simply reject your OIC as you've not complied with the tax rules.

• You should have filed all past income tax returns. If you are not going to stay complaint with all the tax rules, then how can you expect that the IRS will accept your offer without having second thoughts? Tax compliance would mean that you need to meet your tax payments completely and also you should prove that you submitted your returns timely by showing the relevant documents.

• You need to send all of the supporting documents to validate the case. Always handle the IRS representatives politely because shouting at them or getting emotional will not going to help you by anyway.

• There is a user fee and when not enclosed, your offer will be rejected. In case you are requesting a low-income fee waiver, have you submitted the form 656-A?

• Are you a good taxpayer? Individuals who are intentionally cheating the IRS do have a reason to be worried. Once they feel you're being less than truthful, you can forget about getting your Offer approved. When the taxpayer lies to the IRS and submit false documents, the IRS may use to obtain a felony conviction against them.

Do you think you're being courteous and well-mannered to the IRS Offer in Compromise Examiner? Never make matters worse by dealing with IRS examiner in a rude manner. They can make your life miserable. Make sure that you show respect to them while maintaining polite and professional. It isn't something you look forward to, but you will do far better if you address the examiner with respect and in professional manner. But try not to go overboard. Stick to polite, courteous and professional. Whenever they make inquiries, answer directly and to the point. If you can't give proper reply, the chance of your Offer in Compromise getting rejected will undoubtedly get higher and higher.