Offer In Compromise - Frequently Asked Questions (FAQ)
- Can Anyone Qualify for an Offer in Compromise (OIC)?
- If the IRS accepts my Offer in Compromise, does that mean that my State will accept one too?
- Can I complete an Offer in Compromise without Professional Help?
- What is the Advantage of Hiring a Tax Professional to help me with my OIC?
- How much should it cost to hire a Tax Professional to assist me with an OIC?
- If I decide to hire a tax professional to assist me with an OIC does it matter which type of professional I choose?
- How do I file an Offer in Compromise?
- What happens after I send in my Offer in Compromise?
- What if I don't agree with the IRS counter-offer?
- What if I am still unable to get a fair offer accepted from the IRS?
Can Anyone Qualify for an Offer in Compromise (OIC)?
No, unfortunately not everyone qualifies for an Offer in Compromise settlement. This tax reduction procedure is only available to taxpayers who can prove that they cannot afford to pay back the taxes that they owe. The IRS requires that you provide documentation of your income and expenses and proof of the value of any significant assets you own. Once this information is supplied the IRS will enter it into a formula to determine how much they will settle for.
If the IRS accepts my Offer in Compromise, does that mean that my State will accept one too?
Not necessarily. Not all states accept Offers in Compromise and many of the States that do except OICs have much different standards of acceptance from the IRS. The procedure and standards for acceptance vary widely from State to State. If you owe taxes to both the State and the IRS, you need to look at both Offer in Compromise processes separately. It may turn out that both Offers get accepted or maybe just one or the other.
Can I complete an Offer in Compromise without Professional Help?
Yes. Taxpayers need to complete form 433A and form 656 to request an OIC from the IRS. Most self-employed taxpayers will also be required to fill out form 433B. These forms are fairly straight-forward but do require a significant amount of time to fill out completely. If you are filling out the forms on your own, you should give yourself at least 6-10 hours of uninterrupted time to read all of the instructions, gather the information needed and fill out the forms completely. If you are self employed it may take longer. Make sure to double check all of your work before sending the OIC to the IRS. Taxpayers are required to send in a non-refundable deposit with their OIC, so you will want to be sure that it is done right the first time.
What is the Advantage of Hiring a Tax Professional to help me with my OIC?
The process of getting an Offer in Compromise accepted by the IRS is long and detailed. It often takes over a year from the time a taxpayer begins the OIC process to the time the Offer is ultimately accepted, re-negotiated or rejected. A quality tax professional will be familiar with this process and will provide assistance with each step along the way. A tax professional will make sure that your forms are filled out correctly and will also make sure that the dollar amount of the Offer you are making is as low is can be based on your individual situation. When your OIC is assigned to an IRS officer for review
How much should it cost to hire a Tax Professional to assist me with an OIC?
Standard fees in the industry can range anywhere from around $850 up to greater than $5000 in total fees paid to the tax professional. These fees should be based on the complexity of your personal financial situation and the level of service that your OIC will require. A company employed individual with no assets should be charged a lower fee than someone who is self-employed or has a significant number of assets. You should also expect to pay more if your case is urgent due to existing or threatened IRS collection action such as a levy or wage garnishment. If you also need assistance with tax return preparation, that may be an additional fee as well. Using a tax professional may initially seem more costly, but often the value provided by the tax pro is well worth the price in the end.
If I decide to hire a tax professional to assist me with an OIC does it matter which type of professional I choose?
Enrolled Agents, Tax Attorneys and CPA’s are all qualified to assist taxpayers with an Offer in Compromise. The level of experience and integrity of the tax professional matter much more than the type of professional you choose. Many people are not familiar with Enrolled Agents, who are tax professionals admitted to practice and represent taxpayers before the Internal Revenue Service, but many have substantial experience preparing OIC’s and will do an excellent job assisting you. Many CPA’s and Tax Attorneys are also highly qualified to assist taxpayers with Offer in Compromises.
Make sure to do some research on whichever professional you eventually choose to help you. Some businesses which advertise themselves to be Offer in Compromise specialists are actually staffed with high pressure sales people who promise much more than they deliver. Check out the BBB record of any company or individual before you hire them.
Here are some examples of some very poor BBB records:
JK Harris (click for BBB report ) - This Report Speaks for itself.
American Tax Relief (click for BBB report) - This company has an F BBB rating - the lowest possible! - and made the BBB’s list of top 10 worst companies to do business with in California for 2006 – IN ANY INDUSTRY!
Tax Masters (click for BBB report) - 97 complaints in the last 12 months and 15 more pending. BBB report describes their deceptive business practices.
The bottom line here is do your research before you hire someone. Honesty and integrity matter when choosing who you are going to do business with when looking for tax help.
How do I file an Offer in Compromise?
To submit an OIC a taxpayer needs to fill out form 433A and form 656 and mail them to the IRS with a $150 processing fee and either a 20% deposit on the amount you are offering or an initial installment payment if you have chosen the option of paying your offer in payments. Filling out the forms and determining the proper amount to offer can be tricky. If you have trouble with this you may want to contact a tax professional who is familiar with the Offer in Compromise Settlement Process.
What happens after I send in my Offer in Compromise?
When your OIC is first received by the IRS it is given a quick review to make sure that the information you sent is complete and all of the required documents and deposits have been included with the package. If the initial reviewer determines that your Offer in Compromise Package is in order, your offer will be put in the queue to be assigned to an IRS Offer in Compromise Specialist to process. When this happens you will receive a letter informing you that your Offer has been accepted for processing. After you receive this initial letter there is nothing to do but wait. It may take up to several months before you hear from the offer specialist assigned to your case.
Once you do hear from them, you will likely get a letter from them requesting any number of things. The Offer Specialist may request more information from you to process your case. If the specialist has all of the information they need, they may instead send you a letter rejecting your initial Offer but proposing an alternate amount which they would accept based on their calculations. In this case they are also supposed to include a worksheet which details their calculations. It is very important to keep this worksheet and use it to respond to the Offer Specialist if you intend to make a counter offer to their proposal. In the last, and most ideal, case, the Offer specialist may send you a letter accepting your OIC as submitted.
What if I don't agree with the IRS counter-offer?
If you disagree with the amount of the counter offer proposed by the IRS Offer Specialist, you can alway respond with a counter-offer of your own. In order for your counter-offer to be considered it must be based on the type of financial calculations which the Offer Specialist included in the Offer Worksheet. If you are not comforable with relatively complex financial calculations dealing with present value of future disposable income and quick-sale asset valuations, it is during this portion of the Offer process when it may be most beneficial to have an experienced tax professional assisting you with your arguments. This stage of the offer process is your best opportunity to get the lowest offer available to you.
What if I am still unable to get a fair offer accepted from the IRS?
If you are unable to come to an agreement with the IRS Offer Specialist on a fair dollar amount for your Offer in Compromise, you still have the option to appeal one more time. Offer Specialists usually do a good job of calculating the lowest possible OIC acceptable by the IRS. If you are unable to come up with a mathematical argument for why your offer should be lower, the appeals officer is usually going to agree with the original OIC specialist. Taking a case to appeals is beneficial when you disagee with a value the OIC specialist has placed on a particular asset, if you feel that they have overvalued your monthy income or if you feel some other miscalculation has been made by the OIC specialist. Sending a case to appeals may give you more time to gather information to support your claim. OIC Appeals are currently very backlogged. It can take 6 months or longer for your case to be heard from an Appeals specialist.
If you choose not to appeal, you also have the option of withdrawing your original offer and starting the process over again. Unfortunately, you will not get your processing fee back and will have make another deposit.
