A transaction offer (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer's tax liabilities for less than the total amount owed. Taxpayers who can pay their obligations in full through an installment agreement or other means generally won't qualify for an ICO in most cases. Understanding the IRS offer in the commitment formula is crucial if you're trying to reduce your debt to the IRS with this program. A successful compromise offer can substantially reduce your debt to the IRS, allowing you to pay the remaining amount in monthly installments.
However, you'll have to calculate your offer before applying for an OCI and, if you do it wrong, your offer will be rejected. A compromise offer is an IRS tool that allows us to settle your tax debt for less than the full amount you owe. It's possible to file an IRS compromise offer on your own, but it can be a real hassle to do so, and you may not end up getting the best possible settlement amount. A transaction offer is a great way to resolve your tax debt when there are reasonable doubts about your ability to fully pay off the debt before it matures.
If a transaction offer is not for you, or if the IRS rejects your transaction offer, you may still have other options through the IRS to obtain tax relief, such as signing up for an installment payment plan or applying for “not currently collectible” status. When taxpayers can't pay their taxes with their monthly assets and income, they may qualify for a transaction offer (OIC). Read on to learn more about the benefits of submitting a commitment offer to get rid of persistent tax debt that just doesn't seem to go away. Once you know your disposable monthly income and the value of your personal assets, you can include these numbers in the formula to determine what the total amount of your offer should be.
You can make payments while waiting for the IRS to decide whether to grant you a transaction offer. If the IRS rejects your offer, you can keep the payment and deduct it from your debt or return it to you, depending on the reason for the rejection. This money is not refundable, even if the IRS rejects your offer (the IRS will only apply it to your tax bill). It can be a useful tool to see if a commitment offer is a better option than a regular monthly payment plan and by how much.
A transaction offer (with doubts as to the possibility of collecting it) to the IRS must be equal to or greater than what the IRS calculates as the taxpayer's reasonable collection potential. The IRS can be very demanding on transaction offers (since it wants to avoid leaving money on the table), and getting an offer accepted is often easier said than done. This amount is called the offer amount and represents an estimate of how much the IRS will accept to settle a tax bill. In general, if you're not absolutely sure that the IRS will approve your OCI with the amount of the proposed offer, the ICO can be an expensive and unfeasible solution.
Tax professionals with experience in resolving tax debts are still your best option for making an informed decision on how to calculate your reasonable collection potential and create an offer that the IRS is likely to accept the first time, since they can estimate what their offer should be based on. Estimates successful ones that they have provided in the past.