Have you heard the legends about people negotiating with the IRS to pay just a small fraction of their overwhelming tax debt? You probably have, since there are many advertisements out there for tax relief using this concept. What if we were to tell you these legends were true….sort of. It is based on the idea of the Offer in Compromise relief program the IRS offers. Let’s find out the truth about this potential way to resolve your federal tax debt.
It’s a Real Thing…..
The IRS has offered the Offer in Compromise program for many years. In 2011, the Fresh Start Initiative lightened the criteria, but it still remains one of the toughest tax relief programs for which to be approved. With this program, you negotiate a settlement with the IRS to pay a percentage of your tax debt. In return, the IRS forgives the rest of your outstanding balance. As part of the stipulations of the agreement, you must remain in compliance with your future taxes.
But It’s Difficult to Get
If it sounds too good to be true, that is because it is very difficult to get. Fewer than half of applicants actually have their offers approved. This program has some of the toughest criteria for acceptance among the different tax relief programs, even with the help from the Fresh Start Initiative. Although some of the requirements have loosened, it remains very difficult to get.
The Criteria for an OIC
So, how do you qualify for an Offer in Compromise? Well, you have to meet at least one of the following conditions:
- Doubt as to liability
- Doubt as to collectability
- Effective tax administration
What does this mean? Well, doubt as to liability is just as it sounds. You have to prove that there is reasonable doubt as to you actually owe the tax liability for which you are billed. You also have to show that you were not given the opportunity to appeal through normal channels.
The second is the one most people try to qualify for, which is doubt as to collectability. This means that under any circumstances, there is little chance the IRS will actually be able to collect the debt. Usually, this means you have little to no assets and you have a very low income with no foreseeable changes in the future. The amount you offer will be more than the IRS ever expects to receive, so they would prefer to get something rather than nothing.
The third criterium is that you have special circumstances that make it so that paying your tax debt would lead to an unfair economic hardship.
The big factor making an Offer in Compromise difficult to get is that it must be in the best interest of the taxpayer and the IRS. If the IRS does not feel that it is in their best interest, such as a belief that your economic situation will change and they can get the full amount, then you be denied. You also have to be current on all previous tax returns and payments, other than the tax debt owed. You cannot be in bankruptcy proceedings either.
The Latest Statistics
Although it is difficult to get, a successful Offer in Compromise is not impossible. The number of accepted offers is increasing. In 2012, there were 64,000 applications, with 24,000 approved. This equates to a 38 percent approval rate. Per the 2016 IRS Data Book, the latest one available at the time of publication, the number of offers received in 2016 was 63,000, down about 4,000 from 2015. The number of accepted offers remained the same in 2015 and 2016 at 27,000. That means that in 2016, there was about a 43 percent acceptance rate. This makes the average acceptance rate somewhere around 40 percent.
Although these odds might seem low, they do give you a good chance — as long as you qualify, have a solid application, and create a reasonable offer. Some of the rejections might be for simple errors on the application rather than the offer itself being rejected.
How Working with a Tax Professional Helps
Although you do not have to work with a tax professional to apply for an Offer in Compromise, it does help. For one, they have the experience and expertise to review your case and determine if you have a good chance at approval based on your qualifications and situation. They can also counsel you on whether one of the other tax relief options, such as Penalty Abatement, Installment Agreement, or Innocent Spouse Relief might be a better route. A tax professional will review your application and ensure that it is filled out correctly, reducing the potential that your offer is rejected due to a simple error on the form. Finally, they work as your advocate, checking in on the process, and performing any appeal procedures, all of which improve your chances of approval.
Think that you are a good candidate for an Offer in Compromise or looking for another option for settling your tax debt? Contact Fidelity Tax Relief at 877-372-2520 today to talk with one of our tax professionals.