If you’re experiencing IRS problems, a solution might be an Offer in Compromise or OIC. Taxpayers can negotiate with the IRS. An OIC is an agreement reached between the IRS and you that resolves your tax liability. In certain circumstances, the IRS can accept less than the full payment.
Examine the IRS Form 656 booklet before filing an OIC. You’ll know if you qualify for an OIC.
To be eligible for an OIC, you must prove to the IRS that you satisfy one of the following conditions:
- Doubt as to liability - There’s uncertainty that you actually owe the tax liability or if the assessed tax is correct.
- Doubt as to collectibility - This is doubt on the IRS’s part that it will be able to collect your bill from you at present or later.
- Effective tax administration by giving evidence that paying the liability is inequitable as it’ll cause you extreme financial hardship.
How Much Must You Offer?
The money that the IRS could take from your future income plus your assets’ realization value is the sum of the OIC.
The realization value of your assets is determine by the IRS utilizing a “quick sale value” (twenty per cent less than fair market value). Debts on the asset aren’t included.
When determining this sum, you can exclude most of your household assets and personal effects. Antiques, fur coats, and other luxury items, though, have to be included.
The figure of your retirement plans also must be included, less the taxes and penalties connected with cashing them in, and an explanation of how you came to the amount you gave.
You may want to perus the list of items you may exclude from asset calculation in the IRS Publication 594, The IRS Collection Process.
The number connected to the payment plan you wish to use is then multiplied by your disposable income, a figure that can be calculated by subtracting your living expenses from your monthly income.
Payment Plans
- Deferred offer - your future income multiplied by the months left on the statute of limitations for your taxes.
- Short-term Deferred Offer - You will settle the amount of the offer after 91 days but within two years of the IRS notification of acceptance. Multiply your future income by 60.
- Cash Offer - You will pay in full within five months of IRS notification that the OIC has been accepted. Multiply your future income by 48.
Darrin T. Mish is a Nationally recognized Attorney whose practice focuses on representing clients across the United States withIRS Problems. He is AV rated by Martindale-Hubbel and is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. He has been honored by a listing in Martindale-Hubbel’s Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers with both individual and payroll tax problems.
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