Thirty percent of Americans find themselves filing for bankruptcy at some point during their lives. Based on current bankruptcy statistics, yet it appears the numbers are going down.
Though bankruptcy should be a last resort, it does provide much-needed relief to struggling individuals and families. An Offer in Compromise (OIC) is an alternative to filing for Chapter 7 or Chapter 13 bankruptcy.
Since OICs tend to be less complicated, they’re also less expensive than going through bankruptcy proceedings. What is an Offer in Compromise, and how do you qualify for one? Keep reading to learn the answer to those questions and more.
What Is an Offer in Compromise?
What is an offer in compromise? An offer in compromise is an agreement between a taxpayer and the Internal Revenue Service (IRS) that settles the taxpayer’s tax liability for less than the amount owed. The offer in compromise helps taxpayers who cannot pay their tax debt, and it is a way for the IRS to collect the maximum amount of taxes owed without putting a strain on the taxpayer’s finances.
The offer in the compromise program is not a way for taxpayers to avoid paying their taxes and is not an amnesty program. The IRS will carefully review each offer in compromise to ensure it is in the government’s best interest to accept the offer.
How to Calculate Your Offer in Compromise?
Calculating an OIC requires understanding the current financial situation of the taxpayer and the ability to pay taxes. The IRS will consider the income, expenses, and assets to determine their “reasonable collection potential.” The RCP is the amount the IRS believes taxpayers can pay based on their financial situation.
Once they calculate the RCP, the IRS will then consider the offer. The offer must be equal to or greater than the RCP. If the taxpayer cannot pay the RCP, they may still qualify for an OIC if they can demonstrate that paying the RCP would be in the best interest of both the taxpayer and the government.
How to Submit Your Offer in Compromise?
To qualify for an Offer in Compromise, you must submit a completed application, a non-refundable application fee, and an initial payment. You will also need to provide documentation of your financial situation, including your income, expenses, and assets.
The IRS will review your offer and, if accepted, will enter into a legally binding agreement with you. Once your offer is accepted, you must make all required payments in full and on time. The IRS can rescind the offer if you do not pay, and you will be responsible for the amount of your tax debt.
It is best to ask for professional help to avoid further problems and fines. A lawyer can help you with all the processes and requirements for an offer in compromise.
Consider the Offer in Compromise Program Now
An Offer in Compromise is an agreement between a taxpayer and the IRS to settle their tax debt for less than the total amount owed. The program helps taxpayers unable to pay their tax debt and offers a way for taxpayers to resolve their tax debt without having to file for bankruptcy.
If you struggle to pay off IRS taxes, you may be eligible for the Offer in Compromise program. Check out some other great articles on this site before you leave!