Offer in Compromise
When you owe a substantial amount of tax debt to the IRS, it is sometimes possible to settle the debt and pay less than you actually owe. Paying off your debt this way can help you avoid consequences for carrying the debt like tax levies, property liens, and wage garnishment. This is known as an offer in compromise (OIC).
How to Qualify for an Offer in Compromise
In order to qualify for an OIC, an individual must demonstrate the following to the IRS:
- He or she cannot repay the total amount of the debt within a reasonable time frame; and
- Paying the debt in full would create an economic hardship for the individual due to his or her current circumstances. This could be because he or she cannot work due to a health condition or that paying off the debt would leave the individual without enough money for basic living expenses.
In some cases, an individual may secure an OIC when there is doubt regarding the amount of money he or she actually owes to the IRS.
Typically, an individual must put down 20 percent of his or her proposed lump sum repayment with his or her OIC. If the offer is accepted, the individual generally has about two years to repay the settlement amount.
Streamlined versus Traditional Offer in Compromise
There are two versions of the Offer in Compromise program. These are the traditional version of the offer in compromise and the streamlined version.
With a traditional OIC, there are no limits on the individual’s debt or income levels. Instead, what qualifies the individual or not is his or her ability to make payments under the program, his or her expenses, and the individual’s asset availability in consideration alongside his or her total income. To qualify, an individual must be up to date on his or her tax returns or tax deposits or have made his or her estimated tax payment for the current year. He or she must also not be currently seeking bankruptcy protection.
The streamlined version of the offer in compromise provides the filer greater flexibility regarding the offers he or she can make to the IRS. Individuals who pursue a streamlined offer in compromise receive fewer requests for financial information from the IRS and often, interact with the IRS over the phone instead of through the mail. To qualify for this program, an individual must:
- Be employed, unemployed, or self-employed with no employees and gross receipts totaling less than $50,000 annually
- Not be filing for bankruptcy when he or she files for the offer in compromise
- Have a total household income of less than $100,000 when he or she files for the OIC
- Not owe more than $50,000 in tax debt
Work with an Experienced IRS Tax Lawyer
An offer in compromise can be the tool you need to settle your outstanding tax debt. To learn more about pursuing an offer in compromise and other options available to you regarding your tax debt, contact our team of experienced tax lawyers at North Suburban Legal Services LLC today to schedule your initial consultation with us.