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An Offer in Compromise, or OIC, is a way to settle your total tax debt for less than the balance that is due. While this seems like an appealing option to settle any and all problems with the IRS, the truth is that this option is only available for those that meet a set of stringent criteria, all culminating into you being able to prove that you would be unable to pay the full amount in the time that the IRS has to collect on the debt.
There are three types of OIC’s. The first is Doubt as to Collectability. This type of OIC is when there is doubt as to whether the balance due can be paid off within the time the IRS has to collect on your debt. This time frame is the statue of limitations for collection, or ten years since the debt was incurred. This type of OIC is very common when the taxpayer’s monthly necessary expenses exceeds their monthly income, and they do not have any assets or appreciable equity in any property.
The Second type of OIC is the Doubt as to Liability. This is used if the taxpayer has come into evidence that challenges the amount of debt owed, or if the IRS has made a mistake in determining the debt owed. In some cases, it may be more advisable to simply as for an audit reconsideration instead of asking for an Offer in Compromise.
The third type of OIC is Effective Tax Administration. This is used when there is no doubt about the debt owed, but a certain external circumstance would cause economic hardship to the taxpayer. For example, the debt might be paid off by selling the taxpayers house, but the taxpayer needs the funds of the sale to cover medical and living expenses due to some serious condition that they, or their children are suffering from.
Each of these options and investigations into whether one qualifies for these options requires a fee.
What about the states?
Please be aware that each state differs as to whether or not they have an Offer in Compromise program. The title of that respective program may differ in the respective state and so may the conditions. We’ve discussed an Offer in Compromise as it relates to the IRS. If you’re looking for more on an Offer in Compromise as it relates to the state, you need to find information on that specific state’s program.
Feel free to reach out to us if you’re not sure whether or not your state has such a program.