What is an Offer in Compromise for Tax Debt? | Do I Qualify?

November, 12 2024 by Kate Ferreira

For anyone who has listened to the radio or watched TV in the last decade, I am sure you have heard ads about settling IRS debt for pennies on the dollar. Some of these companies will use scare tactics to urge you to call them and “guarantee” they will get your tax debt slashed into a smaller amount. However, these types of ads are incredibly misleading. Anytime a taxpayer calls a tax relief company and asks the question, “Can I settle my debt owed to the IRS for a lesser amount?” the answer should always be: it depends.

One of these options that might be available to you is called an Offer in Compromise. However, whether you can settle your debt through an offer in compromise will depend on what the IRS deems is your collection potential, or ability to pay.
 

The Offer in Compromise Process

To request an offer in compromise, you will need to fill out Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals. This form will require you to list all your assets, including money in your bank accounts, life insurance policies, investment accounts, real estate owned, and any other assets you may own. You will also be required to show the IRS how much you are currently making by providing pay stubs, or profit and loss statements if you are self-employed. This information allows the IRS to determine your monthly disposable income. From here, they will use a formula to see if you qualify to settle your IRS liability for a lesser amount.

This process is not a complicated one; rather it is a simple mathematical equation. However, there are a lot of nuances to the Offer in Compromise program, so we always recommend hiring an experienced tax professional to handle your tax liability.
 

How can TaxAudit help?

A few years ago, TaxAudit represented a client who owed the IRS about $170,000. Prior to contacting us, he had worked with a CPA who didn’t have a lot of experience with the Offer in Compromise program. This CPA submitted an offer in compromise on the client's behalf to the IRS, and the IRS denied their request. Disappointed, the client came to us to see if we could appeal the denied offer in compromise. After reviewing his documentation, we knew if we tried to appeal the denial, it would likely get rejected. This is because when you appeal a denied offer in compromise, the same documents that were submitted previously are reviewed again. Instead, we decided to submit an entirely new offer in compromise to the IRS on the client’s behalf. Once again, the IRS denied the offer in compromise, but based on the documents we had prepared, we felt like we had a solid chance at an appeal. We went through the appeals process, and, in the end, we were able to settle and reduce the amount the client owed from $170,000 to just $11,000.

This is a perfect example of why you should do your research when hiring a tax professional to handle tax relief issues, especially when considering an offer in compromise. A tax professional can let you know beforehand whether or not you stand a good chance of having an offer in compromise accepted, or if it is even worth submitting one. It is important to have a tax professional in your corner who has experience with these issues as well as your best interest in mind.

We have over 30 years of experience in helping taxpayers with situations just like yours. If you are interested in talking to one of our tax professionals, we offer free consultations to discuss your unique tax debt issue. Click here to learn more.