Offer in Compromise
If you find yourself in a situation where you can’t pay your tax liability, don’t fret. There are options available for you to seek solace from the Internal Revenue Service. Consider an offer in compromise, for instance. An OIC is an agreement between yourself and the IRS wherein the tax liabilities are settled for less than the full amount that is owed. If you have the ability to fully pay your liabilities through an instalment agreement, then you won’t qualify for an OIC. In order to qualify, you must be in compliance by filing all tax returns and by making all required estimated tax payments for the current year. If you’re a business owner with employees, you must comply by making the required federal tax deposits for the current quarter.
The IRS, in general, will not accept an OIC unless the amount you offer is equal to or greater than the reasonable collection potential (RCP). By filling out a 433-A, you will be able to know what your RCP is. The result of the 433-A determings the RCP. This is how the IRS will measure your ability to pay. The RCP is made up of value that can be realized by your assets. Common assets are real estate property or automobiles. The RCP will also include any anticipated future income minus certain amounts allowed for basic living expenses. The 433-A form will compile all of this information.
3 Instances Where the IRS May Accept an Offer In Compromise
The IRS may accept an OIC based on three grounds:
First, if there’s Doubt as to Liability, the IRS may accept a OIC. If there is a genuine dispute as to the existence or amount of the correct tax debt under the law, then this compromise will be met.
Second, if there’s doubt that the amount owed is fully collectible, the IRS may accept an offer in compromise. This is known as Doubt as to Collectibility wherein your assets and income are less than the full amount your tax liability.
Third, if there’s doubt that the tax is legally owed and can be collected, the IRS may accept an offer in compromise based on Effective Tax Administration. In order to create an Effective Tax Administration, you must prove that by being required to make payments in full, you’ll either face economic hardship or it will be unfair and inequitable due to exceptional circumstances.
If you require assistance, contact Tax Matters. We’ve been serving the El Paso area since 1988 and we’re ready to help you, today!