An OIC is an agreement that taxpayers can enter into with the IRS when they want to settle their tax debt for less than the full amount they owe. To apply for an OIC, you have to pay an application fee of $205 unless you are considered a low-income individual. In that case, the fee will be waived for you.
When the IRS receives an application for an OIC, they review the applicant's information and consider the taxpayer's unique situation. The IRS will judge your ability to pay based on your income streams, total expenses and asset equity.
How to file an Offer in Compromise
If you are interested in filing an OIC with the IRS, make sure to closely analyze Form 656, Offer in Compromise. This booklet explains the ins and outs of an OIC, including information regarding eligibility, the costs to apply, the application process and forms you may need to submit along with your OIC.
It is available online via the official IRS website. There, you will also find a free how-to video series about how you can resolve your tax debt with the help of an OIC.
Here are some examples of topics that the video series includes:
A general synopsis of the process, the forms you'll need to fill out and a tool to help you determine whether you qualify for an OIC.
The preliminary offer amount can be calculated with the help of the official IRS prequalifier tool. You'll need to input your financial information as well as your tax filing status for the relevant tax year. However, it is important to note that this tool is only a guide. Whether the IRS accepts your application is fully up to their discretion.
The OIC agreement is a direct process between taxpayers and the IRS, eliminating the need for a third party. Unfortunately, some OIC mills still engage in misleading practices, regardless. They prey on vulnerable people and aggressively promote offers to those who clearly do not meet the qualifications to apply in the first place.
This bad-faith behavior can result in significant costs for taxpayers, often amounting to thousands of dollars. These mills make exaggerated claims, which they frequently advertise on the radio or television. They often promise inexpensive resolutions to tax debts without any credibility to their claims.
That's because their fees are often excessive. So, it is essential to recognize that not every taxpayer will be eligible for an OIC. Dishonest promoters may knowingly advise indebted taxpayers to submit an OIC application despite knowing they do not qualify, which ultimately wastes honest taxpayers' money and time. Be on the lookout for these situations.
By working directly with the IRS, taxpayers can obtain the same deal they would receive through an OIC mill and avoid paying unnecessary fees. However, to determine your eligibility, make sure you use the prequalifier tool, which you can use for free.
An OIC is an option for people who are unable to pay their full tax liability. This is especially beneficial if trying to pay your tax debt would pose a financial hardship for you.
To minimize the detrimental outcome of attempting to pay your tax debt, take a few minutes to review the information on the official IRS website. This can help you understand whether you are a good candidate for the OIC agreement while ensuring that you evade costly promoters.
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