If you are facing a tax audit and are unable to pay the full amount owed, you may wonder if there is a way to settle your tax debt for less than what the IRS claims. One possible solution is an Offer in Compromise (OIC), a program that allows taxpayers to settle their tax debt for a reduced amount. However, not everyone qualifies, and the process can be challenging.
What is an offer in compromise?
An Offer in Compromise is an agreement between a taxpayer and the IRS that allows the taxpayer to pay less than the full amount owed in exchange for settling the debt. The IRS considers several factors when determining whether to accept an OIC, including your income, expenses, assets, and ability to pay.
Who is eligible for an offer in compromise?
To be eligible for an OIC, you must demonstrate that you cannot pay your tax debt in full or that doing so would create a financial hardship. The IRS looks at your financial situation and determines whether accepting a reduced payment is in its best interest. If you can afford to pay the full amount over time, the IRS will likely reject your offer.
How to apply for an offer in compromise
To apply for an OIC, you must submit Form 656, along with supporting financial documents. This includes details about your income, expenses, assets, and liabilities. The IRS will review your application and may request additional information. There is also a non-refundable application fee, and you will need to make an initial payment with your offer.
While an OIC can provide relief, it is not a guaranteed solution. The IRS rejects many offers, especially if it believes the taxpayer can pay the full amount. It is essential to fully understand your financial situation and explore all options before pursuing an OIC.