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Offer in Compromise: A Way to Get Out of Tax Debt

 

If you owe the IRS money and can't afford to pay your taxes in full, you may be able to settle your debt for less than the full amount owed through an offer in compromise (OIC). An OIC is an agreement between you and the IRS that settles your tax debt for an amount that you can afford to pay.

There are three types of OICs:

  • Doubt as to collectability (DAC): This type of OIC is used when the IRS believes that it is unlikely to collect the full amount of your tax debt.
  • Effective tax administration (ETA): This type of OIC is used when the IRS believes that it is in the best interest of the government to settle your tax debt for less than the full amount owed.
  • Undue hardship (UH): This type of OIC is used when you can't afford to pay your taxes in full and paying the full amount would cause you an undue hardship.

To qualify for an OIC, you must meet certain requirements. These requirements include:

  • You must be able to show that you can't afford to pay your taxes in full.
  • You must be willing to make a payment that is equal to or greater than your ability to pay.
  • You must be willing to file all of your past due tax returns.
  • You must be willing to enter into a payment plan if your OIC is accepted.

The IRS will consider a number of factors when making a decision about whether to accept your OIC. These factors include:

  • Your income and expenses.
  • Your assets and liabilities.
  • Your ability to pay your taxes in full.
  • Your willingness to cooperate with the IRS.
  • The amount of your offer.

The IRS will also consider the type of OIC you are requesting. For example, an ETA OIC is more likely to be accepted than a DAC OIC.

If your OIC is accepted, you will be required to pay the amount of your offer in full. Once you have paid the amount of your offer, the IRS will discharge your tax debt.

An OIC can be a good option for taxpayers who are struggling to pay their taxes in full. However, it is important to note that the IRS does not approve all OICs. If you are considering an OIC, you should contact a tax professional to discuss your options.