If you owe taxes to the IRS, an offer in compromise allows you to settle your tax debt for less than the full amount you owe.
Many people are surprised to learn that the IRS does make deals on taxes owing, including all penalties and interest. The IRS cuts these deals to get you back in the system as a current taxpayer and to collect something (even if it’s small) on the old taxes owing. One of the ways you could you could make a deal to pay less than the full amount of your tax debt is through an Offer in Compromise (OIC).
What is an IRS Offer in Compromise?
An Offer in Compromise is an IRS program which allows you to settle your tax debt for less than the full amount. An OIC may be an option for you if you can’t pay your full tax liability, or doing so creates a financial hardship.
There are three types of an Offer in Compromise:
- Doubt as to Liability (DATL);
- Doubt as to Collectability (DATC);
- Effective Tax Administration (ETA).
We’ll talk about each of these more below as they are very different.
Is an Offer in Compromise right for me?
Whether an Offer in Compromise is right for you depends on your specific circumstances. The requirements for an Offer in Compromise are strict. Not everyone qualifies. There are very specific eligibility requirements for you to be accepted, but if you qualify, an OIC can be an excellent way to reduce the total amount you owe.
Ordinarily, we would consider an Offer in Compromise when a client owes at least $15,000 and has very little in the way of equity in assets. You must also be using your monthly income to pay your living expenses without much left over each month.
If you’re considering an Offer in Compromise, you should call us for a free consultation. We can review whether an Offer in Compromise would be right for you.
What if I don’t qualify for an Offer in Compromise?
Here’s the good news. Even if you don’t qualify for an Offer in Compromise, that doesn’t mean you have to pay 100% of your tax debt. There may be other techniques that we can use to pay less than the full amount such as a partial pay installment agreement or currently not collectable status.
How can I file an Offer in Compromise?
Under no circumstances should you file for an Offer in Compromise without an experienced tax attorney. While the forms and instructions are online, the process is deceptive. We have had clients overpay their Offer in Compromise because they weren’t aware of all of the rules. An experienced tax attorney can advise you on certain tricks we can use to get you the lowest amount possible.
Many people think that by completing an Offer in Compromise on their own, they’re saving money. This is almost never true. Any money you’d pay to an experienced tax attorney would pay for itself in the reduced settlement amount.
What do I need to apply for an Offer in Compromise?
As part of the approval process, you will undergo an extensive review by the IRS of your current financial condition. If accepted into the Offer in Compromise program, you will continually be reviewed by the IRS to ensure that your financial condition hasn’t changed. In other words, the IRS is looking to see if you can afford to make larger tax payments.
Generally, you will need recent pay stubs, bank statements, loan statements, and any other evidence as to your assets and income.
Does an offer in compromise affect your credit?
Absolutely not. Because unpaid taxes are not generally reported on your credit report, an Offer in Compromise has no effect on your credit score. You can proceed comfortably knowing your credit will be unaffected.
Offer in Compromise – Doubt as to Liability (DATL)
The Offer in Compromise – Doubt as to Liability is a bit different from the other two types of offers. We would use a DATL when there is a question of whether you should even owe the tax. This typically arises in cases where you were audited and assessed an additional tax.
While you have options available for audit reconsideration, we will sometimes use the Offer in Compromise – Doubt as to Liability to resolve these issues.
Offer in Compromise – Doubt as to Collectibility (DATC)
The Offer in Compromise – Doubt as to Collectibility is what most people think of when they think of the Offer in Compromise program. DATC is used where you have limited assets and income and are unable to pay your tax in full.
Ordinarily, we would consider an Offer in Compromise – Doubt as to Collectibility when a client owes at least $15,000 and has very little in the way of equity in assets. You must also be using your monthly income to pay your living expenses without much left over each month.
Offer in Compromise – Effective Tax Administration (ETA)
The Offer in Compromise – Effective Tax Administration is used in a case where, on paper, you can afford to pay your tax, but for some reason it would be unfair or unreasonable for you to do so.
To put this in perspective, consider this example. Assume the taxpayer is disabled and wheelchair-bound. His only income is social security. The taxpayer has a ranch-style house which he fitted with ramps and other handicap accessible items. He owns the house outright with no mortgage. While technically, this would be an asset if we were to consider a DATC, it would be unreasonable for him to sell the house. Any place he moved to would need to be retrofitted with handicap accessibility.
This person may be a good candidate for an Effective Tax Administration Offer in Compromise. This really opens doors for our clients because you do not need to fit into the box of a DATC Offer.
Where can I get more information about an Offer in Compromise?
If you’re looking for more information about settling your tax debt, you can request a free copy of our book, The Essential Tax Resolution Survival Guide. As part of the ARM Yourself With Knowledge series, this guide aims to help you navigate the tax resolution process and what happens afterward.
Our tax attorneys have experience applying for Offers in Compromise
We have experience helping taxpayers like you eliminate hundreds of thousands of dollars in tax debt. When we analyze your tax situation, we try to determine the best course of action for you.
At ARM Lawyers, our tax attorney handles tax cases nationwide and has offices in Pennsylvania, Maryland, New Jersey, and New York. For more information about the tax process in your state, feel free to click below:
- Pennsylvania tax lawyer
- Maryland tax lawyer
- New Jersey tax lawyer
- New York tax lawyer
If you are looking to settle your tax debt, contact us for a free consultation with a tax attorney
The IRS does settle tax debts using the Offer in Compromise program. We have experience settling these debts for pennies on the dollar. Call now to schedule your free consultation so we can settle your debt and start you on your path to relief.
Take back control of your financial future. Providing both immediate relief and long-term solutions, tax resolution could be the answer you have been looking for. Our tax attorneys strive to make this process as easy as possible by offering flexible payment options and financing.
Contact our law office today to schedule a free consultation! Call or reach out to your closest office:
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The best part is that we can start the whole process over the phone or by video conference so you don’t even need to come into the office! We make everything as easy as possible for you from start to finish. Call us today.