If you’re feeling overwhelmed by tax debt, you’re not alone. For many people, repaying the full amount simply isn’t realistic. But there’s hope – and it might come in the form of an Offer in Compromise.
Let’s walk through what this option is, who qualifies, and how it might help you finally breathe easy again.
What Is an Offer in Compromise?
An Offer in Compromise (OIC) is a program offered by the IRS that allows taxpayers to settle their tax debt for less than the full amount they owe. Yes, you read that right – it’s possible to pay less than you owe and still be in good standing with the IRS.
The IRS considers your income, expenses, assets, and overall ability to pay. If they determine you can’t reasonably pay your full tax debt without experiencing financial hardship, they might accept your offer.
Who Qualifies for an Offer in Compromise?
The IRS doesn’t hand these out like candy – you have to qualify. Here are a few key eligibility factors:
- You’ve filed all required tax returns
- You’re not currently in active bankruptcy
- You’ve made estimated payments for the current year (if self-employed)
- You can demonstrate financial hardship or inability to pay the full debt
The IRS uses a formula based on your “reasonable collection potential.” If your offer is less than what they think they can realistically collect, it’s more likely to be accepted.
How Much Can You Settle For?
It depends. Some people settle for pennies on the dollar. Others are required to pay more. The IRS calculates your offer amount based on:
- Your monthly disposable income
- The value of your assets (home equity, bank accounts, retirement, etc.)
- Your future income potential
The more accurately you present your financial situation, the better your chances of having a realistic offer accepted.
The Application Process
The OIC process involves submitting:
- IRS Form 656 (the official offer)
- Form 433-A (collection information statement)
- A non-refundable application fee ($205 unless you qualify for a waiver)
- An initial payment (either lump-sum or periodic, depending on the offer)
It’s a complex process – and getting it right matters. Mistakes or incomplete information can lead to automatic rejection.
That’s why working with experienced tax professionals like Sheepdog Tax Resolutions can make all the difference.
Should You Apply?
An Offer in Compromise can be life-changing. But it’s not for everyone.
You might be a good candidate if:
- Your tax debt is significantly higher than what you can realistically pay
- You’re going through a period of financial hardship
- You’ve exhausted other options like installment agreements or penalty abatement
Not sure where you stand? We can evaluate your case and walk you through the best options available.
Final Thoughts
If you’re losing sleep over tax debt, it’s time to take a step toward relief. An Offer in Compromise could give you a fresh financial start – but only if it’s handled correctly.
Contact us today to schedule a free consultation. We’ll review your situation and help you determine if an OIC is your best path forward.