An Offer in Compromise (OIC) allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or doing so creates a financial hardship. The Internal Revenue Service (IRS) considers unique set of facts and circumstances for those who will be filing an OIC which include:
- Ability to pay
- Income
- Expenses
- Asset equity
Who is eligible to file for an IRS Offer in Compromise?
You’re eligible to apply for an Offer in Compromise if you:
- Filed all required tax returns and made all required estimated payments
- Aren’t in an open bankruptcy proceeding
- Have a valid extension for a current year return (if applying for the current year)
- Are an employer and made tax deposits for the current and past 2 quarters before you apply
How to Apply for an IRS Offer in Compromise?
An application for an OIC has three (3) parts:
- Completed IRS forms 443-A and 656. If you believe the tax debt isn’t yours or doesn’t actually exist, you can also file Form 656-L.
- A $205 application fee which is non-refundable, but may be waived if you meet the IRS low-income guidelines.
- A payment toward your proposed new balance due.
Further, filing an OIC may require you to provide information about your monthly income, assets, cash, and other debt as well as your rent, utilities, groceries, and other expenses.
