Offer in Compromise: How It Works and What You Can Do.

Lump sum

A lump sum is defined as an “offer payable in 5 or fewer installments” and must be paid within five or fewer months after the IRS accepts.

A lump sum OIC must include a 20% non refundable payment equal to the number of the offer amount.

Let’s break this down.

For example, you owe $30,000 in back taxes and offer to settle your taxes with a lump sum of $20,000.

When you submit your OIC, you must include 20% of the lump sum offer, which in this example, would be $4,000.

If the IRS accepts your OIC, they will take the $4,000, and you will now owe the remaining $16,000 over the next five or fewer months.

It is important to note that the 20% lump sum due upfront is nonrefundable and does not guarantee that the IRS will accept your offer.

Regardless if the offer is accepted or denied, the IRS will keep the 20% and apply it to your overall balance.

Payment Plan

Not everyone can afford to throw down an entire lump sum. Thankfully there are more options.

A payment plan consists of six or more monthly installments to conclude within 24 months after the IRS accepts the offer.

You must include the first payment and an application fee when submitting a payment plan offer.

For example, let’s say you owe $30,000 in back taxes and offer to settle your taxes with a payment plan over 12 months.

When you submit your OIC, you include your first payment and your $205 application fee, which in this example would be $2,500+$205=$2,705.

Your remaining balance ($27,500) over the next 11 months would be $2,500 per month.

Note: the first payment and the application fee are nonrefundable and do not guarantee that the IRS will accept your payment plan offer.

If the offer is accepted or denied, the IRS will still take your first payment and apply it to your outstanding balance.

Statistically, the odds of getting an IRS offer in compromise are low. In 2021, the IRS only accepted 30% of applications.

It’s not impossible, though. You can do this, and Total Tax can help. Total Tax can increase your odds with an acceptance rate of more than 90%. We achieve this by accurately assessing from the beginning whether or not you will qualify for an OIC.

Here’s how the IRS decides whether to accept an offer in compromise.

While every case is different, the IRS may accept your OIC based on one of the following reasons:

Doubt as to liability

Doubt as to liability means that when the IRS considers the facts presented to them, it is uncertain whether or not you truly owe the taxes due.

If the IRS feels that they have enough evidence that you owe the taxes due, they may reject your OIC request.

Doubt as to Collectibility

Doubt as to collectibility means that the taxpayer’s income and assets are significantly less than the full amount of tax liability.

In this case, a lower payment (or no payment) may be accepted.

Effective Tax Administration

In the rare case where there is no doubt to liability and no doubt as to collectibility, but it would be impractical, unethical, or provide economic hardship – an OIC offer may be accepted.