An Offer in Compromise can be a great tool for your clients with an outstanding federal tax debt.
4 min read
An Offer in Compromise can be a great tool for your clients with an outstanding federal tax debt. This collection remedy allows your clients the chance at a fresh start with the Internal Revenue Service.
An Offer in Compromise (“OIC”) is a settlement option offered by the Internal Revenue Service to taxpayers with an outstanding tax liability. An OIC allows taxpayers to settle their tax debt with the IRS for an amount less than what is currently owed.
The IRS will consider many factors before approving an OIC. OIC applicants are generally put through a rigorous financial investigation before the application is approved. While this results in a large number of OIC rejections, there is still a great chance of success with the right candidate and a strong OIC application.
As a tax professional, many of your clients will often want to opt for the OIC route simply because it is the only option that lowers the total value of the tax debt. It is also for this reason that this method is the most advertised settlement option by Tax Resolution companies, accounting firms, etc.
There are many factors to consider before submitting an OIC for your client. First and foremost, the IRS will look to see that the taxpayer is current on all their returns. Any missing returns will render an OIC candidate ineligible for the program.
Next, the IRS will perform a thorough review of your client’s financial situation in comparison to the total debt owed. Before submitting your client’s application, you will want to review their finances in order to better understand if they are eligible for an offer.
Lastly, you will want to explain to your client that the IRS has a two-year time frame to approve or deny an OIC. It is important that your client understands that the process can take time.
If the OIC is rejected, what are my options?
If the OIC is rejected, taxpayers can still submit an appeal within 30 days of the date on the rejection notice. The appeal will be submitted on Form 13711, “Request for Appeal of Offer in Compromise.” This appeal letter needs to address the issues raised in the OIC rejection, and the taxpayer will likely have to provide additional documentation. This appeal can potentially allow the taxpayer an opportunity to renegotiate their rejected offer under more acceptable terms for the IRS.
Offer in Compromise is a useful collection remedy that can allow an eligible taxpayer a fresh start with their tax debt. It is important to go over all the potential risks of an OIC rejection with your client to ensure that you submit a thorough application. Lastly, it is important to remember that if the OIC does not work out, there are other options and methods for relieving tax debt for burdened taxpayers— an OIC is simply one of many options available.
Want to learn more about getting offers accepted by the IRS? Check out this free ebook written by a former revenue officer.
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