If you’re squeamish about filing your taxes because you owe back taxes and aren’t in a position to pay in full, you might be able to qualify for an Offer-in-Compromise (OIC). Depending on how much you owe, you could potentially save thousands of dollars in taxes, penalties, and interest by qualifying for an IRS offer-in-compromise settlement.

What Is An Offer-in-Compromise?

An offer-in-compromise is an agreement between the IRS and a taxpayer to settle their tax liabilities for less than the total amount owed. It’s also is a good way to prevent the IRS from garnishing your paycheck. Unfortunately, the IRS will not accept an OIC if they believe you have the resources and can pay the liability through a payment agreement or in full as a lump sum.

Some advertisers claim that tax debts can be settled through the OIC program for pennies on the dollar. However, this program is extremely complicated and time-consuming and requires an experienced tax advisor. Getting qualified and having the IRS agree to an OIC can often take as long as two years to complete. As a professional tax service, we’ve been working with the IRS for years on behalf of our clients seeking IRS tax debt relief and are able to expedite and simplify the process.

No Legal Right to Offer-in-Compromise

Be aware also that you have no specific legal rights to have a valid tax bill reduced by the IRS. Each case is individual and is entirely a matter of government discretion. In all but a few instances, however, the IRS must at least give a properly submitted OIC fair consideration. In recent years, up to 40% of the OICs submitted were accepted by the IRS, a relatively high percentage compared to prior years.

Typical Qualifying Circumstances

Just because you want to make a deal with the IRS is not enough. As you can imagine, everyone who owes the IRS taxes would like to have his or her tax bill reduced. That’s just not the way an OIC works. Basically, to qualify for OIC consideration, you must show the IRS that one of the following conditions exists:

1. There is some doubt as to whether the IRS can collect the tax bill from you — now or in the foreseeable future. The IRS calls this “doubt as to collectability.”

2. Due to exceptional circumstances, payment of your full tax bill would cause an “economic hardship” or would be “unfair” or “inequitable.”

Taxes Must Be Filed, All Paperwork Must Be Properly Filled Out

This year, the IRS announced that Offer-in-Compromise applications received on or after March 27 will now be returned if the taxpayer has not filed all required tax returns. In these cases, the application fee will be returned and any required initial payment submitted with the offer will be applied to outstanding tax debt. This policy does not apply to current year tax returns if there is a valid extension on file.