How to Qualify for an IRS Offer in Compromise (OIC)

An offer in compromise is a settlement offer with the IRS available for those who meet specific qualifications. Offers are not guaranteed to be accepted at the time of applying and interest and debt collection attempts continue during the review process. Keeping this in mind, it is very important to meet all of the requirements when submitting the application. The two different types of offer in compromise are streamlined and standard. Both have specific legal grounds to qualify.

Streamlined Offer in Compromise

In order to qualify for filing a streamlined offer in compromise, you must be either a wage earner, unemployed, or self-employed with no employees and gross receipts under $50,000. You must have a total household income of less than $100,000 at the time of filing. Additionally, the total amount of tax debt owed cannot be more than $50,000. Additionally, you cannot be filing for bankruptcy at the time of applying for the offer in compromise.

The greatest benefit of this program includes greater flexibility for accepting offers. In other words, the IRS is more willing to accept your offer and end your tax bill. Additionally, the IRS sends fewer requests for financial information with a streamline offer and contacts applicants by phone when gathering information instead of by mail.

Standard Offer in Compromise

The traditional offer in compromise does not set a limit on the amount of debt or total income. Instead, it takes into account a person’s ability to pay, total income, expenses, and asset availability. In order to qualify, you must file all of your tax returns up to date, make the estimated tax payment for the current year, or tax deposits for the quarter if you are self-employed. As with the streamline offer, you cannot be applying for bankruptcy when you make the offer. Finally, the IRS will keep any tax refund that would have been given during that tax year to be deducted from your tax debt.

Application Process

If you meet the above criteria, you can file for an offer in compromise by filling out IRS Form 656. The form must be submitted with a $186 non-refundable deposit. The deposit will be applied to your overall tax debt after processing. You must also provide either a 20% payment of your offer, along with less than five other subsequent payments, or the first payment with your specified terms. Payments must be made during the application process, regardless of whether your offer has been accepted.

If you are considering making an offer in compromise and need assistance with the drafting or are having trouble contacting the IRS, consult with a local tax attorney for advice and assistance.

Case Studies: Understanding IRS Offers in Compromise (OIC) Eligibility and Application Process

Case Study 1: Streamlined Offer in Compromise for a Self-Employed Individual

John is a self-employed freelancer with no employees. Due to financial hardships, he accumulated a tax debt of $45,000.

John’s gross receipts were under $50,000, and his total household income was less than $100,000. In this case study, we explore how John qualifies for a streamlined offer in compromise.

We delve into the specific requirements, including his employment status, income level, and tax debt amount. We also discuss the benefits of the streamlined program and how it provides John with greater flexibility in resolving his tax bill.

Case Study 2: Standard Offer in Compromise for a High-Income Taxpayer

Emily is a successful business owner with a high income. Unfortunately, she encountered financial difficulties and ended up with a substantial tax debt of $200,000.

We examine how Emily navigates the standard offer in compromise process. We discuss the factors taken into account, such as her ability to pay, total income, expenses, and asset availability.

Despite not having a debt limit or income threshold, Emily must meet various criteria and fulfill specific obligations to qualify for the offer. We delve into the application process and highlight the importance of compliance with tax filing and payment requirements.

Case Study 3: Applying for an Offer in Compromise During Bankruptcy Proceedings

Sarah, a small business owner, finds herself in a challenging situation where she has accumulated significant tax debt of $100,000 and is also considering filing for bankruptcy.

We explore the complexities of applying for an offer in compromise while simultaneously dealing with bankruptcy proceedings. We discuss the limitations and requirements in such situations, emphasizing the need for careful coordination and strategic decision-making.

We also highlight the impact of bankruptcy on the offer in compromise process and explain how Sarah can navigate through these legal complexities with the assistance of a tax attorney.