Providing Effective Offer in Compromise Solutions

An Offer in Compromise (OIC) is the formal method the IRS uses to settle liabilities for less than the amount owed. The OIC program is over 60 years old. Advertising suggesting there is a new program is misleading. Few changes have been made to the authority Congress gave to the IRS to enter into OICs. However, the IRS is constantly tweaking the OIC procedures.

There are three types of OICs: Doubt as to Collectibility, Doubt as to Liability, and Effective Tax Administration. Doubt as to Collectibility is a fancy way of saying "I cannot pay the debt." Doubt as to Liability is a fancy way of saying "I do not owe the debt.” effective Tax Administration is for unique situations where the debt can be paid and is owed but very unique circumstances exist which suggest that the liability should be compromised. The vast majority of OICs are for Doubt as to Collectibility. One must demonstrate the inability to pay the debt, through income or assets. The rules in the Internal Revenue Manual regarding what constitutes an inability to pay the debt are voluminous.

Only assessed debts can be settled. Therefore, tax returns must be filed prior to the filing of an OIC. In addition, all audits must be finalized prior to the filing of an OIC. Payment of current taxes is a requirement in the OIC process. Estimated tax payments and/or withholdings must be current. OICs come with several conditions. The most important condition is that one must file and pay their taxes in a timely manner for the five years after the acceptance of the OIC. 

Our office does not file OICs unless we believe the process will be successful. This has lead to a 100% success rate over the last four years. If an OIC is not the approach, we have other solutions.