IRS and State Offers in Compromise

The IRS OIC program allows taxpayers to resolve federal tax debt for less than the amount owed. It is a way for you to get out of trouble with the IRS when you simply cannot pay your tax debt.

As an alternative to collection actions such as wage garnishment, tax levies, and tax liens, an OIC allows you to make monthly payments toward your tax liabilities over a set period of time. As long as you make consistent payments, the remaining balance at the end of the term is forgiven. You can also make a lump sum if the reduced amount is within your means to pay all at once.

Many state revenue agencies are also willing to compromise on state taxes. For example, if you’re behind on Georgia state taxes, you may be able to save money with a Georgia Offer in Compromise.

There are strict qualifications for tax resolution programs. Because taxes are necessary to manage our government and public expenses, the IRS or your state DOR will only consider an Offer in Compromise for three reasons:

1. There is reasonable doubt that the debt is collectible. The taxpayer’s assets and income are less than the amount owed.
2. There is a dispute as to whether they correctly determined the amount owed—in other words, there is doubt as to liability.
3. The debt is based on effective tax administration, meaning that while the debt is correct and the taxpayer is able to pay the debt in full, doing so would cause economic hardship.

The Offer in Compromise process is not an easy one. You must complete and submit several forms, including Form 656, Offer in Compromise, and Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B (OIC), Collection Information Statement for Businesses. In your application, you must submit a strategic offer and a detailed collection information statement. This is essentially like a tax audit on your income and assets, needed to provide the IRS with proof that you are unable to pay your tax bill.

In addition to the overwhelming amount of paperwork, you must include a $150 application fee and the first payment of your offer or 20% of the offered lump sum.

If your account has been assigned to a private collection agency, you won’t be able to request an Offer in Compromise from them. However, you can still contact the IRS or your state DOR to apply for one. A tax professional can also help you apply.

The IRS and state revenue departments look at each individual case for Offer in Compromise, paying special attention to unique circumstances. You have the best possibility of acceptance if you are:

• Retired on a fixed income
• In legal trouble with the IRS or your state DOR
• Facing bankruptcy due to unpaid taxes
• Unable to pay a full tax liability without experiencing economic hardship
• Within federal low-income guidelines

For federal tax liabilities, you may want to look at the IRS’s pre-qualifier tool to see if you might qualify. If you do not qualify, our tax attorneys at Wiggam Law can help you find other options for tax resolution that you are eligible for.