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Offer in Compromise
In very rare cases of tax debt, the Internal Revenue Service (IRS) may accept an Offer in Compromise (OIC), an agreement that relieves a taxpayer of liability for tax debt. This measure should be considered a last resort for attempting to rid oneself of debt, as OICs are adopted in less than 1% of cases.
In an OIC, the IRS agrees to accept less than full payment on tax debt when the decision is in the best interest of both the taxpayer and the IRS, hence the lack of cases. There are three reasons for which an Offer in Compromise might be accepted:
- "Doubt as to the liability" - The IRS is not certain that the liability is correct.
- "Doubt as to collectability" - The IRS does not think the taxpayer can ever pay in full.
- "Effective tax administration" - The taxpayer has proven that exceptional circumstances prevent him or her from being able to pay the full amount.
If all other avenues have been exhausted and you wish to make an Offer in Compromise to the IRS, you must determine your reasonable collection potential (RCP), or the value amount of your personal assets plus future income. Except in special circumstances, your offer should be at least equal to your RCP.
You can offer to pay in one lump sum or in periodic payments. You must agree to comply with future payment requirements and, since the passing of the Tax Increase Prevention and Reconciliation Act of 2005, you most likely will need to pay 20% of your offer up front. It's important that you understand OIC guidelines because you are responsible for completing and submitting all necessary forms and the application fee.
It is crucial that you work with a tax expert to properly complete the Offer in Compromise process. Here at DebtHelp.com, we will find you the professionals you need to relieve your tax debt.
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