The IRS' Offer in Compromise (OIC) program may be the most desirable Internal Revenue Service program because once the offer is accepted and you pay the amount offered your tax problem is over immediately, and brighter days are ahead. The OIC is a contract with the government where the taxpayer makes an offer to settle, the IRS accepts the offer, and there is consideration (payment) which completes the essential elements
of the contract. Of course, the Internal Revenue Service does not just allow taxpayers to offer whatever they decide they can pay and then accept it.
The Offer in Compromise is attractive because it allows you to pay what you can afford and still be considered paid in full.
The amount you owe is not a consideration when determining the acceptability of your offer. The IRS decides if an offer meets the minimum amount they will accept by reviewing the financial information submitted and doing their own Reasonable Collection Potential (RCP) assessment. If the taxpayer's offer equals or exceeds the RCP it is likely the offer can gain
approval.
However, there are other factors that the IRS will consider in addition to
the financial aspects. If you owe back taxes and you believe you will never be able to pay what the Internal Revenue Service claims that you owe, then you should consider filing
an Offer in Compromise.
Using a professional when preparing the Collection Information Statement (CIS) can be invaluable. First, because they should know how to properly complete the form and avoid exposure to the penalties. Second, the practitioner will be able to suggest planning alternatives that may position you to secure acceptance of your offer at the lowest dollar amount.
Taxpayer’s are cautioned to be truthful when completing the CIS. A
taxpayer who elects to be less than forthcoming when preparing the CIS is flirting
with loss of their freedom. The IRS will pursue perjury charges against a taxpayer
who they believe has lied on the CIS submitted. The punishment for perjury can
include imprisonment. The offer rules also require you to be compliant in filing of all returns.
Therefore, if you have any returns that have not been filed, you must prepare them
and submit them to the IRS.
Here are a few things to consider:
You don’t have to pay any returns covered by the Offer in Compromise. All unpaid taxes are resolved by the offer and you have a “Fresh Start” with the IRS.
An Offer in Compromise will resolve employment taxes, which is something that bankruptcy cannot accomplish.
Don't forget the 5-year rule. Once the IRS accepts your offer, you must be timely in filling and paying your tax returns for the next 5 years. Failure to do so may result in the Offer in Compromise being defaulted. This could result in the full liability originally owed being reinstated, less the payments made prior to the default.
Tax problems happen to good people. Don't be embarassed. For every tax problem there is a solution.
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