• An offer in compromise (OIC) is a legally binding agreement between you and the Internal Revenue Service (IRS) that allows you to settle your tax debt for less than what you owe. You may write an offer in compromise letter if you can prove that paying the full amount of taxes owed would cause undue economic hardship or is simply not feasible.
• Faris Khatib, the CEO of Ideal Tax states that the most important thing to remember when writing your offer in compromise letter is, to be honest, and thorough about your financial situation. The IRS will consider factors such as income, assets, living expenses, and equity in assets when evaluating your offer. It’s important to provide detailed information about your financial circumstances.
• In the letter, you should include a proposed payment plan and proof of financial hardship. Attach copies of bank statements, pay stubs, proof of income, and expenses such as rent or mortgage payments, child support payments, etc.
• The Offer in Compromise allows debtors to agree with the Internal Revenue Service regarding payback and usually entails paying back less than what is originally owed.
• The OIC program is designed to provide relief to taxpayers who cannot pay their taxes in full. An OIC is a potential solution for taxpayers who, due to financial hardship, are unable to pay the full amount of tax they owe. Resolving your tax issue often requires communication and a negotiated agreement between you and the IRS or state taxing authority.
• The acceptance of an OIC by the IRS or state taxing authority is not guaranteed, and certain criteria must be met for the Offer to be accepted.
If you hope to negotiate your taxes owed through an Offer in Compromise with the IRS, know that there is a process to follow which starts with filling out Form 656. There is also a $186 application fee. But, if your monthly income falls below the Federal Poverty Guidelines, you might not need to pay this fee. The OIC demands that, via Form 433-A (for individuals) or Form 433-B (for businesses), you submit complete financial information to the IRS. This is referred to as a Collection Information Statement. This financial information includes a list of all assets and liabilities, including bank accounts, investments, and any real estate holdings.
Once your application is accepted by the IRS, they will review all of your income, assets, expenses, and liabilities to determine what amount you can pay within five or fewer months. Once approved, you will receive a notification letter that your OIC has been accepted.
>> The Offer in Compromise program is available to individuals and businesses who owe taxes to the Internal Revenue Service (IRS). To qualify for an Offer in Compromise, taxpayers must meet all of the following criteria:
If the taxpayer meets all of the criteria outlined by the IRS, then they may be eligible for an Offer in Compromise program.
>> The IRS provides several payment options to pay your Offer in Compromise. You may be able to make an immediate lump-sum payment or periodic payment plan:
When submitting an offer, you will most likely need to pay 20% of the amount upfront. The balance can be paid in five or fewer monthly installments within five months of the IRS' acceptance of your offer.
The tax debt settlement process allows you to pay your debt in monthly installments over a term that is shorter than 24 months, but longer than five months. When applying for this service, you should include your first monthly payment along with the application fee.
As you wait for a response from the IRS, make sure to continue making monthly payments as suggested in your original offer. If they accept your offer, keep up with the payments until the entire amount is paid off. If you don't make your payments, the IRS will reject your offer and you won't have any right to appeal.
A lawyer can help you understand tax law, review documents, prepare correspondence, and represent you when negotiating with the IRS. A lawyer will also make sure you are understanding your rights as a taxpayer and protecting your legal interests.
Furthermore, having an attorney on your side can give you peace of mind knowing that a legal expert is looking out for your best interests. It's important to remember that the IRS has significant resources and experience in dealing with tax matters, and it’s in your best interest to hire a knowledgeable and experienced attorney who understands all aspects of taxation to help you with your IRS negotiations.
• Writing an Offer in Compromise letter to the IRS can be a daunting task. It is important to ensure that your letter clearly explains the financial hardship you are facing, as well as any relevant facts and numbers. The IRS wants to see evidence of both the taxpayer’s inability to pay their full tax debt and that entering into an Offer in Compromise is the best option for both the taxpayer and the IRS. Additionally, you must include financial information such as income, expenses, assets, and liabilities. If your letter fails to explain any of these facts or figures adequately enough for the IRS to understand, it could be rejected.
• Finally, make sure that your Offer in Compromise letter is addressed to the correct IRS office and that it includes all of the appropriate forms and documents. The money you owe will not be reduced unless you submit a complete package, including your Offer in Compromise letter, so make sure everything is included before submitting it.