How To File an Offer in Compromise
If you want to resolve your IRS problems and pay off your liability, you may want to think about an Offer in Compromise (OIC). Depending on the circumstances, it’s possible to pay less than what you owe by negotiating with the IRS.
You can determine if you qualify for an OIC by examining the IRS Form 656 booklet.
You’ll need to prove to the IRS that you meet any of these conditions in order to qualify for an OIC:
- Doubt as to collectibility – There’s doubt on the IRS’s part that it will collect your tax bill from you at present or later.
- Doubt as to liability – This is uncertainty that you even owe the tax bill or that the assessed tax is accurate.
- Effective tax administration by giving evidence that paying the tax liability is unjust as it’ll cause you financial crisis.
The Best Offer
The money that the IRS could collect from your future income and the realization value of your assets are what is calculated for the sum of the OIC.
The amount the IRS could take if they seized your assets and sold them at present is the realization value of your assets. Debts connected to the property will not be included. To determine this figure, the IRS utilizes a “quick sale value”, meaning 20% less than the fair market value.
In coming up with with this sum, you don’t have to include personal or household effects. You should include luxury items, though.
The balances of your retirement plans also should be included, less the taxes and penalties connected with cashing them in, with an explanation of how you arrived at the amount you supplied.
You might wish to read the roster of items you may exclude from asset calculation in the IRS Publication 594, The IRS Collection Process.
You deduct your necessary living expenditures from your monthly income to establish your future income. This is your disposable income. This amount is then multiplied by the number connected to the type of payment plan you want to use.
Payment Plans
- Cash Offer � You will settle in a lump sum within 5 months of IRS notification that the OIC has been accepted. Multiply your future income by 48.
- Short-term Deferred Offer � You will settle the amount of the offer after 91 days but within 2 years of the IRS notification of acceptance. Multiply your future income by 60.
- Deferred offer – your future income multiplied by the months remaining on the statute of limitations for collecting your taxes.
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