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When Does the IRS Offer Tax Debt Settlements?
|Last Updated on: 28th October 2023, 01:14 pm
When Does the IRS Offer Tax Debt Settlements?
If you owe back taxes to the IRS, you may be wondering if they’ll agree to let you pay less than you owe. An offer in compromise allows you to settle your tax debt for less than the full amount. But when does the IRS actually agree to an offer in compromise? Here’s what you need to know.
What is an Offer in Compromise?
An offer in compromise (OIC) is an agreement between you and the IRS to settle your tax debt for less than the full amount you owe. For example, if you owe $20,000 in back taxes, the IRS may agree to accept a smaller amount, like $10,000, to consider the debt fully paid. It can be a great solution for taxpayers who can’t afford to pay their full tax bill.
When Will the IRS Accept an OIC?
The IRS will only accept an offer in compromise if:
- You have a legitimate inability to fully pay your tax debt
- Accepting less than the full amount owed is in the best interest of both you and the IRS
You’ll need to demonstrate you can’t afford to pay through an analysis of your income, expenses, assets and overall financial situation. The IRS wants to see you’ve explored all payment options before they’ll agree to settle for less.
Doubt as to Liability Offers
If you think your tax bill is incorrect, you can file an OIC based on doubt as to liability. For example, if you were audited but never received the notice, or your records were destroyed so you can’t verify the amount due. You’ll need to provide evidence to support why you don’t think you owe the amount due.
Paying an OIC
When your offer is accepted, you’ll need to pay the agreed settlement amount. You’ll likely have to pay it in 5 or fewer installments. The IRS will keep any payments already made and may levy assets if you default on the OIC.
Other Important Facts
Here are some other key things to know about IRS offers in compromise:
- The IRS usually won’t accept an OIC if you can fully pay through an installment agreement or other means.
- Penalties and interest continue to accrue while an OIC is pending.
- The statute of limitations on collections is suspended during the OIC process.
- If accepted, you can’t later contest the amount owed.
- The IRS will remove the original tax debt amount once you satisfy the OIC.
References
- Offer in Compromise | Internal Revenue Service
- Understanding Your CP508C Notice | Internal Revenue Service
- 10.5.1 Privacy Policy | Internal Revenue Service
- [PDF] Offer in Compromise – (Doubt as to Liability) – IRS
- Tips helped IRS get $367M from tax cheats – POLITICO Pro
- Topic No. 204, Offers in Compromise | Internal Revenue Service