10 Decider Facts Offer in Compromise IRS May Accept or Reject

Whether the Offer in Compromise IRS accepts or rejects depends on your application’s unique facts and circumstances. Acceptance of your Offer in Compromise application by the IRS will depend on many factors, including your ability to pay debts, income, expenditure, assets etc. Remember, as a general rule, the IRS approves an Offer in Compromise when all facts presented before it indicates that the maximum collection possible as per the OIC is almost the same as IRS expected.

1. What is Offer in compromise IRS programme?

There may be varied reasons that may have given rise to unpaid tax debt in your name. You financial conditions may be such bad that paying a tax liability is a huge burden on you. In such a scenario, IRS has a programme under which they may agree with you for a lesser amount of payment of outstanding tax and settle the tax debt forever. Thus, IRC 7122 empowers IRS to compromise on the actual burden of tax debt and agree to a lower amount based on the facts and circumstances of the applicant under offer in compromise.

An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that permanently settles tax liabilities for an agreed sum by both parties-taxpayer as well as IRS.

Video: 10 decider facts on offer in compromise IRS

If you do not have time, watch this 2-minute video to get a summary of the offer in the compromise post.

2. IRS does not accept offers. in compromise automatically

IRS does not automatically accept your Offer in Compromise or OIC in short. According to the IRS data book, the IRS acceptance rate for OIC applications in 2021 was 31%. This shows that the majority of applications for offers in compromise are rejected.

3. Test Your Eligibility for Offer in Compromise

The IRS website provides a free tool called Offer In Compromise Pre-Qualifier. See the description below for the link. Use it to understand whether your application may succeed or not. IRS has put a very relevant that assists in gathering the information needed for deciding your eligibility instantly. The speciality of this tool is also that it is a calculator for determining a preliminary offer amount.

We have also created, for your help, a simple yes-no type prequalified test that can show prima facia if you are suitable for filing an application for tax debt relief under the offer in compromise policy.

4. What is the fee for an offer in compromise IRS application?

There is a fee of $205 for the submission of the Offer in the compromise application. However, the fee is waived for people below the poverty line. So, if you are one of them, Include a Low-income certificate with the application. Sole proprietors are also considered individuals for fee waiver purposes.

5. For which years can IRS consider an offer in a compromise application?

The Offer in Compromise is available only for tax years you are assessed by the IRS. Any tax years or periods that have not been assessed are not eligible.

6. Are you current with tax filing & estimated tax?

Have you filed all tax returns, including the current year? You must have filed all tax returns and must have made all estimated tax payments due on your current tax return. Suppose you are a business owner with employees to be eligible for an Offer in Compromise. In that case, you must have deposited all required federal tax for the current quarter and the two preceding quarters.

7.No OIC if Filed for Bankruptcy proceedings

Both, the Offer in Compromise program of the IRS and the Bankruptcy Proceeding filed in a court, may solve the tax debt, but both can not be approached at the same time. If you have already initiated bankruptcy proceedings, you would not be eligible for an Offer in Compromise. In fact, if the taxpayer files for bankruptcy after the OIC process has started, IRS will return the OIC application without the possibility of an appeal.

8. What is IRS Collection Information Statement?

Depending on your status, IRS will require you to complete an IRS Collection Information Statement, either in Form 433-A or Form 433B. These statements provide the IRS with extensive and detailed personal financial information that helps them decide the application for offer-in-compromise.

Who needs to fill out Form 433-A (OIC)?

if you are an individual wage earner, operate or operated as a sole proprietor, or are authorized to submit an offer on behalf of the estate of a deceased individual. If you are married but living separately from your spouse, you must submit Form 433-A (OIC). This will assist in the calculation of an appropriate offer amount based on your assets, income, expenses, and future earning potential. You will have the opportunity to provide a written explanation of any special circumstances that affect your financial situation.

Who needs to fill out Form 433-B (OIC)?

Fill out Form 433-B (OIC) if the business is a Corporation, Partnership, or LLC. This will assist in the calculation of an appropriate offer amount based on the business assets, income, expenses, and future earning potential. If the business has assets used to produce income (for example, a tow truck used in the business for towing vehicles), the business may be allowed to exclude equity in these
assets.

9. Where to Get the Offer in compromise IRS form?

You need to file two forms -one is Form 656 and one out of the following two forms, based on your circumstance.

1. For an OIC based on doubt as to collectibility or based on effective tax administration
   1. Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals
   2. Form 433-B (OIC), Collection Information Statement for Businesses
   3. Both forms can be found in this IRS booklet
2. For an OIC based on doubt as to liability, download the following forms: Form 656-L 

Have you checked our offer in compromise IRS calculator that helps in estimating the initial payment of the offer amount?

10. Fourcommon reasons IRS reject your offer in compromise

There can be many reasons for the rejection of an offer in compromise, following four are the most common reasons, as found by tax professionals

1. The offer is too low, which goes against the IRS’s view of the potential of collection from your income and assets.
2. IRS feels that you have not provided complete information substantiating your financial condition.
3. You did not pay your current year’s tax liability.
4. You’ve been convicted of a serious crime.