IRS (Internal Revenue Service) offer in compromise (OIC) is actually a legal agreement between the IRS and the taxpayer. This agreement settles the tax liabilities of the taxpayer for a lesser amount. Therefore, the taxpayers who are capable of paying the whole liabilities at once or in installments are not eligible for this.
In simple words, you are asking for debt forgiveness if you have more income tax to pay to the federal. If you think you have the right to appeal for the OIC, you can go for it. Afterward, it upon the authorities to assess whether to accept your appeal or return the offer. You can read more about IRS Law Blog.
Does the rules and time got reduced during the pandemic?
Unlike many other things, the OIC rules and regulations did not get any leniency for the pandemic time. Therefore, almost everything is the same as it was before this global crisis. Both before and during the pandemic, the internal revenue service accepted around 35 percent of the OIC that they received. Thus, even now, their rules are the same as before. So if you want success, you have to get the approval from the Service that you have a financial inability. That is why you are not capable of repaying them.
About the time period – Normally the decision of the IRS takes about 9 to 12 months. You will get a response after this much time. But because of the pandemic situation, the IRS got low. The internal revenue service is itself experiencing delays in the work. They closed their offices and that is why the number of pending cases increased significantly.
Consequently, the time to investigate the cases increases during this Pandemic. Moreover, if your income is also reduced significantly, you can also get the OIC settlement. Thus, with the help of the IRS, you can get through this tough time. But only if you get a positive response from them.
A general idea about OIC agreement
If you are struggling financially and have greater hardships, your chance of getting acceptance increases. It is specially designed to aid people who are facing financial hardships. So if this is your dark period and you are confused about what to do, think about the OIC. Moreover, the primary factor that determines your amount calculation is also your monthly income. So if you have got a reduced pay, it is beneficial in terms of IRS.
4 different scenarios you might encounter
When talking about the IRS offer in compromise, you can encounter 4 different scenarios. The scenario that you will get depends upon the investigator that the service has assigned for your case. So what are these 4 scenarios?
- If your income is reduced during the investigation, it will remain as it is when the investigator is calculating your offer in compromise.
- You got a reduction in income but your earning increases during the investigation period. So when you are waiting for a response from them, they update their information. Therefore, it affects the outcome and your cost to compromise increases.
- This situation is somewhat similar to the 2nd one with the difference that the IRS did not update their information. Thus, your income remains low as it was at the beginning of the investigation. So that won’t affect the cost to compromise.
- You get a pay reduction during the beginning of the investigation but your income increases for a short time. There is a very high chance that the system update to your increased income. Contrarily, you get a reduction after a short while. So the cost will be calculated based on the higher income status. You will be very unlucky if this happens to you.
Can you qualify for an OIC?
Your qualification for getting approval from the IRS depends upon various factors. Your appeal likely gets rejected by the authorities. Therefore, it is important to know the complete details before appealing.
The qualifying criteria set by the IRS is quite strict for the offer in compromise. Therefore, you need to ensure that,
- You have filed all of your tax returns. You can look for some legal help to learn about it if you are not sure about your tax returns.
- If you have made an offer, you must have received the bills for the tax debt. You must have at least one bill to show.
- You must have all the estimated tax payments for the ongoing tax year if you are applicable to tax.
- In the case of a business owner, you have to deposit the required federal tax of the current quarter.
- Neither you nor your business is open currently for the proceeding of bankruptcy.
- You must also not have the outstanding innocent-spouse claim and not have an open audit from the IRS.
- The internal revenue service has not yet referred your case to the Justice Department.
Other than these, there are also certain standards for getting the qualification. IRS will consider your OIC (offer in compromise) for these three situations.
Doubt as to liability
The doubt as to liability includes – There is an authentic dispute about whether you owe anything or the total amount that you owe.
Doubt as to collectability
The Internal Revenue Service believes that it might not be possible to collect your tax debt completely. This happens when your income and all the assets are less than the tax liability amount.
Effective Tax Administration
Although you can pay the full amount but it might only create hardship for you. Moreover, the IRS can indeed collect the money back that you owe them. But, if you are unable to pay the whole amount back, you can actually get rid of it. Certain exceptional situations make the full payment collection inequitable and unfair for the organization. Therefore, if you are facing any such situation, you can lessen your hardships.