By Mia Khattar, guest blogger
Covid-19 has had a profound impact on the lives of all Americans for better or for worse. Some of us may have seen positive changes in our life such as taking up a new hobby or spending more time with family. However, despite the positives, these difficult times have resulted in a loss of income for many taxpayers which may make it harder for them to settle their tax debts while still providing for themselves. If you find yourself in this predicament you may be eligible to file an offer in compromise.
What is an Offer in Compromise?
An offer in compromise (OIC) allows you to settle your tax debt for less than the amount you initially owed. It is an option if you are unable to pay your full tax liability, or if doing so may result in financial hardship. They typically take around 9 to 12 months to receive, but due to the pandemic it may take from 12 to 18 months.
There are three main types of OIC’s. First there is OIC for doubt as to liability which is a form of tax settlement where the taxpayer disputes the tax assessed. The second is OIC for effective tax administration. This form is a tax settlement that stems from an agreement between the taxpayer and IRS which states that the tax owed is correct and that it should be paid in full. However, in this case, the taxpayer makes a request to settle said amount for less than what they owe since collecting the tax would lead to economic hardships or that public policy or equity considerations warrant paying an amount which is less than owed.
The third and most common form is OIC for doubt as to collectability (OIC-DATC). This is a tax settlement in which the taxpayer’s financial situation does not permit them to pay the amount which they owe with their current assets and their future income. Tens of thousands of OICs are attempted per year, but only around 35% are approved by the IRS annually. To make matters more difficult, despite the newfound financial hardships brought about by the pandemic, the rules and calculations employed by the IRS have not become more lenient, thus making the success of your case based off your financial inability to pay off your debt. So how can you get approved for an offer in compromise?
Getting Approved for an Offer in Compromise
The most common mistake made by taxpayers when filling an OIC is that they cannot pay the offer amount which is calculated by the IRS. When filing for a OIC taxpayers must keep in mind that your reduced income should remain stable while your case is under investigation as the IRS utilizes it to calculate your OIC. If your income increases during this period, the IRS will most likely update their records causing the cost of your OIC to go up. Additionally, if your change in income is short-term, the IRS will often opt to use your higher earnings from before the pandemic, which may reflect negatively on your compromise.
This situation is also seen with taxpayers who are currently unemployed but will potentially be employed in the near future as the IRS will probably utilize the level of income that the taxpayer would have if they were fully employed. Furthermore, the result of your OIC is determined solely on the OIC officer assigned to your case, most of whom will utilize your income during COVID, but some may request additional up to date info. Also, do some research as to ways in which you can increase your chances of OIC acceptance. To find out if you are eligible for an OIC you may use the “OIC Pre-qualifier Tool” which is located on the IRS’s website.
How Delia Law Can Help
If you are considering applying for an IRS offer in compromise, Delia Law will help increase your chances of getting approved through thorough analysis and strategy. We will help guide you through the process of filing for an OIC and make sure that you get the best settlement for your financial situation.
Throughout this process we will be in close contact with the IRS, and we will help you to minimize the questions asked to you while persuading them to accept your lower income as it will result in the lowest settlement for you. If you would like more information on OICs or how to be approved for one, get in touch with us today.