The IRS established the Offer in Compromise (OIC), in 1992 and quite often it is the best method of solving tax debts.
Taxpayers can save large amounts of money on accepted OICs; about an average of 88% have been reported by the IRS.
That's means for every dollar owed only 12 cents was paid.
Given this potential for huge savings, taxpayers should make sure that any one they hire to help them file their tax returns will work diligently to find out if they qualify for an OIC.
Generally, an OIC can be negotiated under two main circumstances.
They are: 1.
Doubt about collectability - the taxpayer cannot pay the total tax debt 2.
Doubt about the liability - the taxpayer claims that he or she does not owe the debt Recently another basis for OIC was created, called "effective tax administration.
" This means that the IRS would want to realistically get as much as it can from the taxpayer and the figure of 12 cents is what the IRS believes they can easily get.
The taxpayer, in order to be granted an OIC, must be able to show that he/she does not actually owe the amount claimed by the IRS or that he/she cannot possibly pay the tax debt.
A taxpayer's financial profile includes details about income, expenses and assets.
This information would determine whether there is "doubt about collectability.
" Another good thing about submitting an OIC is that the IRS is prevented from collecting the tax debt during the period that an Offer in Compromise is being processed.
They are also prevented from collecting during the 30 days after a rejection of an offer or during an appeal.
When an OIC is accepted, one can pay in one of two ways: short-term deferred payment or cash, the details of which you can find out from your tax advisor.