What is the minimum offer amount for an OIC?
It's important to offer as little as you can. It's not always easy. The IRS will accept a small amount of your financial situation. You will need to disclose this on Form 433 A (for wage-earners or the self-employed) and 433 B (for businesses).
Be detailed Be prepared to disclose:
- If you have declared bankruptcy
- How much and when you could receive the money if you are the beneficiary of an estate, trust, or life insurance policy
- What's inside your safe deposit box?
- Your bank accounts, investments, and available credit. Life insurance policies with a cash value.
- Real estate, personal vehicles, as well as intangible assets like domain names, patents, and licenses that still have value
Another bad news is that the IRS will generally not allow you to count college expenses or private school expenses, charitable donations, voluntary retirement contributions, or payments on unsecured loans.
Once you have done this, the IRS will calculate the minimum offer. It will require your assets and a year-to-two-year's worth of income in addition to what it considers acceptable expenses. The IRS will require you to pay some amount even if your expenses and secured debt exceed your assets.
Send an offer
You are responsible for filling out and including multiple forms when you submit a request for an offer in compromise. You must also include a collection statement for individuals or businesses in addition to the offer itself.
You will need to include a $150 application fee and the first payment for your offer in most cases.
Your initial payment should not exceed 20% of the total amount you are offering to pay. If you are notified in writing that your offer was accepted, you will need to pay the balance in five or fewer payments.
If you agree to pay over a monthly payment plan, your first payment should reflect the amount in your plan. You should make this payment every month until the IRS notifies you. If your offer has been accepted by the IRS, you can continue to make monthly payments until your balance has been paid in full. This should not take more than 24 months from the acceptance of your offer.
If your offer is based upon doubts of liability, you don't need to pay a fee.
If you meet the criteria for Low-Income Certification, you don't have to pay either the initial down payment or the application fee. It depends on your family size and household income as well as your location. If your household is three members and your monthly income is less or equal to $3997, you will be exempt from the initial fees.
You can find step-by-step instructions as well as all blank forms including those for low-income qualifications in the IRS booklet on offers in compromise.
Rejection of an OIC: Reasons
It pays to be careful. Rejections are common.
The government feels the offer is too low and will pay you in full for future earnings. In such cases, the IRS will inform you of what it believes you can pay.
Failure to provide sufficient information can be a sign of a poor financial situation.
Failure to make tax payments on time for the current fiscal year. If you continue to fall behind in your taxes payment, you are a poor risk to the OIC.
You have been convicted of a serious offense.
Optional Rejected Offers
The IRS will accept less than half of the compromise offers it receives. Your pitch is likely to be rejected.
Two ways can you respond to an IRS rejection of an OIC. The first is to submit a resubmission of your offer. A new Form 656 is not required if you submit it within a month of the original offer. It's just a letter increasing your offer.
You can fill out a new form 656 if you have to wait longer or if the offer has been significantly modified. You can appeal the rejection by filing Form 13711 within 30 calendar days of receiving the rejection letter. In this form, you will identify the parts that you disagree with and explain your reasons.
Hire an attorney
Although you can file your application, Professor Stearns advises against it. A Low-Income Taxpayer Clinic can help you complete an OIC if your income is eligible. These federally funded clinics are located in all 50 states, with at least one in each state except North Dakota.
You might consider hiring a tax resolution company if you fail the income test.
Many reputable tax firms exist. Oxford Tax Partners is a Chicago-based firm with many offices across the country. They generally get good customer reviews. Travis W. Watkins, Oklahoma City, and Dallas are also good customers.
There are many good tax attorneys in cities and towns. The Better Business Bureau can help you find a good firm. Check out online reviews. Ask your friends.
Beware of those midnight radio advertisements. It is possible to be scammed.
Stearns stated that OICs were the bread and butter for late-night radio advertisements. The ads state: "If you owe $10,000, please call us. Are you looking for a fresh start? "Fresh start" is code for Offer in Compromis.
J.K. Harris was once the largest tax resolution company in the country, with 325 offices across the country. This is a cautionary tale, but it's not the only one. After being sued by 20 state attorneys generals, the company was forced to close its doors in 2012. The lawsuit accused it of charging clients unprofessional fees and making false promises.
Stearns stated that the going rate at tax resolution firms is $5,000 to $8,000 for a retainer. Many of them work just fine. Some of them are not. This is a tedious task of filling out forms. It's a great deal if it costs $20,000 and you owe 100,00. It's not if you owe $10,000.
People can be taken for a ride if the place isn't reputable."
Appealing against a Rejection
The IRS accepts only about 25% of all offers. Therefore, it is likely that your offer will not be accepted.
You can appeal the IRS decision if they reject your offer of compromise. Within 30 days of the rejection date, you can file an appeal request.
What are the Downsides of an OIC?
The IRS can be difficult to comply with if you provide too much information. But that's just one potential problem. It can take as long as a year to complete the process, and several months if you appeal.
For the OIC to be finalized, you must keep up your tax compliance for five years. Even a slight slip-up can give the IRS the right to revoke the agreement or demand payment for all the liabilities you thought you had avoided.
Also, an OIC can suspend the IRS' 10-year statute to collect taxes. The IRS has four years to collect taxes if it has been six years since it assessed taxes against your property. The IRS has four years to collect on you even if your OIC is not accepted after it takes one year.
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What is the minimum offer amount for an OIC?
It's important to offer as little as you can. It's not always easy. The IRS will accept a small amount of your financial situation. You will need to disclose this on Form 433 A (for wage-earners or the self-employed) and 433 B (for businesses).
Be detailed Be prepared to disclose:
- If you have declared bankruptcy
- How much and when you could receive the money if you are the beneficiary of an estate, trust, or life insurance policy
- What's inside your safe deposit box?
- Your bank accounts, investments, and available credit. Life insurance policies with a cash value.
- Real estate, personal vehicles, as well as intangible assets like domain names, patents, and licenses that still have value
Another bad news is that the IRS will generally not allow you to count college expenses or private school expenses, charitable donations, voluntary retirement contributions, or payments on unsecured loans.
Once you have done this, the IRS will calculate the minimum offer. It will require your assets and a year-to-two-year's worth of income in addition to what it considers acceptable expenses. The IRS will require you to pay some amount even if your expenses and secured debt exceed your assets.
Send an offer
You are responsible for filling out and including multiple forms when you submit a request for an offer in compromise. You must also include a collection statement for individuals or businesses in addition to the offer itself.
You will need to include a $150 application fee and the first payment for your offer in most cases.
Your initial payment should not exceed 20% of the total amount you are offering to pay. If you are notified in writing that your offer was accepted, you will need to pay the balance in five or fewer payments.
If you agree to pay over a monthly payment plan, your first payment should reflect the amount in your plan. You should make this payment every month until the IRS notifies you. If your offer has been accepted by the IRS, you can continue to make monthly payments until your balance has been paid in full. This should not take more than 24 months from the acceptance of your offer.
If your offer is based upon doubts of liability, you don't need to pay a fee.
If you meet the criteria for Low-Income Certification, you don't have to pay either the initial down payment or the application fee. It depends on your family size and household income as well as your location. If your household is three members and your monthly income is less or equal to $3997, you will be exempt from the initial fees.
You can find step-by-step instructions as well as all blank forms including those for low-income qualifications in the IRS booklet on offers in compromise.
Rejection of an OIC: Reasons
It pays to be careful. Rejections are common.
The government feels the offer is too low and will pay you in full for future earnings. In such cases, the IRS will inform you of what it believes you can pay.
Failure to provide sufficient information can be a sign of a poor financial situation.
Failure to make tax payments on time for the current fiscal year. If you continue to fall behind in your taxes payment, you are a poor risk to the OIC.
You have been convicted of a serious offense.
Optional Rejected Offers
The IRS will accept less than half of the compromise offers it receives. Your pitch is likely to be rejected.
Two ways can you respond to an IRS rejection of an OIC. The first is to submit a resubmission of your offer. A new Form 656 is not required if you submit it within a month of the original offer. It's just a letter increasing your offer.
You can fill out a new form 656 if you have to wait longer or if the offer has been significantly modified. You can appeal the rejection by filing Form 13711 within 30 calendar days of receiving the rejection letter. In this form, you will identify the parts that you disagree with and explain your reasons.
Hire an attorney
Although you can file your application, Professor Stearns advises against it. A Low-Income Taxpayer Clinic can help you complete an OIC if your income is eligible. These federally funded clinics are located in all 50 states, with at least one in each state except North Dakota.
You might consider hiring a tax resolution company if you fail the income test.
Many reputable tax firms exist. Oxford Tax Partners is a Chicago-based firm with many offices across the country. They generally get good customer reviews. Travis W. Watkins, Oklahoma City, and Dallas are also good customers.
There are many good tax attorneys in cities and towns. The Better Business Bureau can help you find a good firm. Check out online reviews. Ask your friends.
Beware of those midnight radio advertisements. It is possible to be scammed.
Stearns stated that OICs were the bread and butter for late-night radio advertisements. The ads state: "If you owe $10,000, please call us. Are you looking for a fresh start? "Fresh start" is code for Offer in Compromis.
J.K. Harris was once the largest tax resolution company in the country, with 325 offices across the country. This is a cautionary tale, but it's not the only one. After being sued by 20 state attorneys generals, the company was forced to close its doors in 2012. The lawsuit accused it of charging clients unprofessional fees and making false promises.
Stearns stated that the going rate at tax resolution firms is $5,000 to $8,000 for a retainer. Many of them work just fine. Some of them are not. This is a tedious task of filling out forms. It's a great deal if it costs $20,000 and you owe 100,00. It's not if you owe $10,000.
People can be taken for a ride if the place isn't reputable."
Appealing against a Rejection
The IRS accepts only about 25% of all offers. Therefore, it is likely that your offer will not be accepted.
You can appeal the IRS decision if they reject your offer of compromise. Within 30 days of the rejection date, you can file an appeal request.
What are the Downsides of an OIC?
The IRS can be difficult to comply with if you provide too much information. But that's just one potential problem. It can take as long as a year to complete the process, and several months if you appeal.
For the OIC to be finalized, you must keep up your tax compliance for five years. Even a slight slip-up can give the IRS the right to revoke the agreement or demand payment for all the liabilities you thought you had avoided.
Also, an OIC can suspend the IRS' 10-year statute to collect taxes. The IRS has four years to collect taxes if it has been six years since it assessed taxes against your property. The IRS has four years to collect on you even if your OIC is not accepted after it takes one year.
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