| The Offer in Compromise (OIC) program in the United | | | | fee along with Form 656 - Offer in Compromise. |
| States is an Internal Revenue Service (IRS) program | | | | However, certain low income taxpayers may qualify to |
| that represents an agreement between the taxpayer | | | | waive the application fee. You may choose to pay the |
| and the IRS that settles the taxpayer's liabilities for less | | | | OIC using one of the following options: |
| than the amount owed. You, usually use the checklist in | | | | Lump Sum Cash Offer: The amount due must be paid |
| the Form 656 to determine if you are eligible for this | | | | within five or less non-refundable installments upon |
| program. If you believe you are eligible to file an OIC | | | | notice of acceptance. When filing your Form 656, you |
| you should seek out representation from either | | | | are required to pay 20% of the offer amount. A Lump |
| attorneys, Certified Public Accountants (CPA) or | | | | Sum Cash Offer is calculated as follows: |
| Enrolled Agents who can represent taxpayers in front | | | | - If the offer will be paid in 5 or fewer installments in 5 |
| of the IRS. | | | | months or less, the offer amount must include the net |
| Enrolled Agentsare great representatives when filing | | | | value of your assets and the monthly anticipated |
| an OIC. Enrolled Agentsare admitted to practice by the | | | | future earnings amount multiplied by 48 months. |
| IRS and can do so nationwide, unlike attorneys and | | | | - If the offer will be paid in 5 or fewer installments in |
| CPAs. In order to become an Enrolled Agent, one | | | | more than 5 months but less than 24 months, the offer |
| must pass theSpecial Enrollment Examination, also | | | | amount must include the net value of your assets and |
| referred to as the EA Exam. TheEA Exam is tax | | | | the monthly anticipated future earnings amount |
| specific and covers tax law more in depth than the | | | | multiplied by 60 months. |
| BAR or CPA Exam. | | | | - If the offer will be paid in 5 or fewer installments in |
| In most cases, the IRS rejects an OIC unless you offer | | | | more than 24 months, the offer amount must include |
| an amount that is equal to or greater than the | | | | the value of your assets and the anticipated future |
| Reasonable Collection Potential (RCP). The RCP is | | | | earnings amount spread over the remainder of the |
| what the IRS uses to measure your ability to pay, and | | | | statute. |
| includes the value attached to your assets like bank | | | | Short Term Periodic Payment Offer: You must pay |
| accounts, properties, automobiles, etc. Additionally, the | | | | the offer amount within 24 months of the date the IRS |
| RCP also takes into account your anticipated future | | | | received the offer. The first payment is made along |
| earnings, and adjusts them accordingly for basic living | | | | with the $150 application fee when Form 656 is |
| expenses using set standards. AnEnrolled Agent with | | | | submitted. The monthly installments must continue to |
| OIC experience will know how to calculate the RCP | | | | be paid while the OIC is under review and are |
| and can help determine a reasonable offer amount to | | | | non-refundable if the OIC is rejected. |
| help prevent rejection. | | | | - If the offer will be paid in 5 or more installments within |
| Offer in Compromise: Considerations | | | | 24 months, the offer amount must include the net |
| An OIC can be requested based on the following | | | | value of your assets and the monthly anticipated |
| conditions: | | | | future earnings amount multiplied by 60 months. |
| - Doubt as to Collectibility: You show a reason for | | | | Deferred Periodic Payment Offer: You must pay the |
| doubt that you can repay the full amount of the tax | | | | offer amount over the remaining statutory period for |
| liability you owe to the IRS within the stipulated time for | | | | collecting the tax liabilities incurred by you. |
| repayment. For instance, if you owe $20,000 in unpaid | | | | - If the offer amount must include the net value of |
| tax liabilities, you agree to what you owe is correct | | | | your assets and the monthly anticipated future |
| and accurate. Also, you show that your monthly | | | | earnings amount spread over the remainder of the |
| income does not meet your living expenses, you do | | | | collection statute. |
| not own any property, and you are unable to pay off | | | | The IRS officials are not bound to offer you terms as |
| your liabilities in a lump sum or through installments. | | | | proposed by you. The OIC investigator may propose a |
| - Doubt as to Liability: You show a reason for doubt | | | | different plan after assessing your financial condition |
| that your assessed tax liability is accurate and correct. | | | | and ability to pay off your taxes. |
| Possible reasons for this doubt include mistakes by the | | | | IRS Circular 230 Disclosure |
| tax examiner, failure of the examiner to consider your | | | | Pursuant to the requirements of the Internal Revenue |
| evidence, or you have new evidence. | | | | Service Circular 230, we inform you that, to the extent |
| - Effective Tax Administration: To be eligible for an | | | | any advice relating to a Federal tax issue is contained |
| OIC under these grounds, you must show the IRS and | | | | in this communication, including in any attachments, it |
| the tax collectors that paying off your liabilities would | | | | was not written or intended to be used, and cannot be |
| create a situation of economic hardship for you. For | | | | used, for the purpose of (a) avoiding any tax related |
| instance, you may have enough funds to pay off your | | | | penalties that may be imposed on you or any other |
| taxes within the specified time, but due to some | | | | person under the Internal Revenue Code, or (b) |
| unforeseen reasons, paying the taxes would worsen | | | | promoting, marketing or recommending to another |
| your economic situation beyond repair. | | | | person any transaction or matter addressed in this |
| Offer in Compromise: Payment Options | | | | communication. |
| Ideally, you are required to submit a $150 application | | | | |