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Posted On March 08, 2019
2019 Tax Time: It’s the Perfect Time to Come to Terms with Your Debt

2019 Tax Time: It’s the Perfect Time to Come to Terms with Your Debt

A federal tax debt should never be ignored. Several options are available to that debt, including making an Offer in Compromise. However, debtors need to be wary of OIC mills or mistakes they may make when negotiating with the IRS on their own. Consulting with an IRS debt attorney could debtors determine how to come to terms with their tax debt.

What is an Offer in Compromise?

An Offer in Compromise (OIC) can be requested by filing Form 656 with the IRS and paying the $186 application fee. The debtor will need to provide proof to the IRS that the offer being made is the maximum he or she can pay. That proof must include a complete financial disclosure that provides information about the debtor’s income, expenditures, assets and equity holdings. Additionally, Form 433-A – Collection Information Statement must also be submitted by those who are wage earners or self-employed.

The IRS will review the application and determine whether to accept the request. If accepted, negotiation will begin between the IRS and the debtor or his tax debt attorney. An agreement will need to be reached regarding how much back taxes the debtor can afford to pay.

Benefits of filing an OIC include:

  • Upon settlement, the clock stops on IRS penalties and interest will stop accruing
  • In instance of severe financial hardship, the $186 may be refunded
  • Payments can be made in installments over two years

Issues that Could Complicate an OIC

The acceptance rate for an OIC is under 20 percent. If the IRS determines that a delinquent taxpayer can afford to pay his tax debt, it will reject the OIC request. Before applying for an OIC, taxpayers should explore all options for legally settling their tax debt, including establishing a payment plan with the IRS.

Bankruptcy proceedings could also further complicate things. If the tax debtor is in an open bankruptcy, he cannot file for a tax debt settlement.

Tax debtors who are successful in applying for an OIC must be careful to comply with the terms of their deal with the IRS. If payments are not made, they will be liable not only for the original amount of taxes due minus any payments made, but all penalties and accrued interest charges. It is also likely that the IRS will refuse further negotiations regarding that debt.