IRS Offers Offer in Compromise for Individuals Struggling to Pay Taxes

The Internal Revenue Service (IRS) encourages individuals struggling with the burden of taxes to take their life into their own hands and consider potential alternatives. Does your organization serve clients who owe the IRS, but can’t pay? An Offer in Compromise (OIC) may be the answer.
 
What is an Offer in Compromise?

An OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. If a client is unable to pay his or her tax liability in a lump sum or through an installment agreement and has exhausted their search for payment arrangements, the client may be a candidate for an OIC.
In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay and includes the value that can be obtained from assets such as real property, automobiles, bank accounts and other property. The RCP also includes anticipated future income, minus the amounts allowed for basic living expenses.

Who Qualifies for an Offer in Compromise?

In order for a client’s OIC to be considered, they must meet the following requirements:

• Not a debtor in an open bankruptcy proceeding
• Must pay $150 application fee with your offer*
• Must submit one of the following payments with the offer:
  • Option 1: 20 percent payment of the offer amount
  • Option 2: The first monthly payment

*Your client may be exempt from the $150 OIC fee depending on income or whether the OIC is based solely on doubt as to tax liability. Taxpayers who claim the poverty guideline exception must certify their eligibility using Form 656-A, Income Certification for Offer in Compromise Application Fee. The poverty guideline exception applies only to individuals.

How do you File an Offer in Compromise?

The Form 656-B, Offer in Compromise Bookletcontains information about filing an OIC and all forms necessary to file one.

When submitting an OIC, you must use the most current version of Form 656, Offer in Compromise, or Form 656-L, Offer in Compromise (Doubt as to Liability), depending on the basis of the OIC.

For more information on OICs visit the IRS website.

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This article originally ran in the IDAresources.org Update Newsletter on 09/15/11 and is available for archival purposes.
For updated information on asset building and the AFI program, please see www.IDAresources.org. 

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