A transaction offer allows you to pay off your tax debt for less than the full amount you owe. It can be a legitimate option if you can't pay your full tax liability or if doing so creates financial difficulties. The Offer in Compromise (or OIC) program, in the United States, is an Internal Revenue Service (IRS) program under 26 U, S, C. A taxpayer uses the checklist in the Form 656 package, Pledge Offer, to determine if the taxpayer is eligible for the Commitment Offer Program.
The objective of the OIC program is to accept a commitment when the acceptance benefits both the taxpayer and the government and promotes voluntary compliance with all future payment and filing requirements. This commitment offer program is available to any taxpayer, but is primarily used by people who are elderly, disabled, or have special extenuating circumstances. Taxpayers who submit an offer based on a theory of doubt as to liability (or DATL) must establish that they have not otherwise had an opportunity to challenge a tax liability. If the IRS can demonstrate that the taxpayer received the appropriate assessment notifications and failed to act accordingly, or challenged the tax in the context of an audit, the taxpayer will not be able to apply for this type of relief.
A commitment offer based solely on doubt as to liability does not require the submission of financial information. Settlement amount %3D (monthly disposable income x several months) plus the net realizable capital of the taxpayer's assets. Disposable income is the monthly income minus the allowable monthly expenses. It is important to recognize that the IRS will not allow all the expenses that the taxpayer may actually have.
Common expenses not allowed are paying a dependent's college tuition and credit card payments (not allowed because they represent unsecured debt). The number of months during which disposable income must be calculated in the amount of the offer is based on the shortest of the months remaining until the expiration date of the Collection Act (CSED) for the tax debt OR 6 or 24 months, depending on the payment option for the OCI that the applicant is selecting. If a taxpayer believes they qualify, complete a financial statement on a form provided by the Internal Revenue Service. Wage earners and self-employed individuals use Form 433-A.
Form 433-B is for offers that involve all other types of businesses. These financial statements identify all assets and liabilities, as well as disposable income. Effective offers from the Tax Administration (ETA) may apply when the taxpayer is not eligible for a transaction offer based on a theory of doubt as to liability or doubt as to collectability. The taxpayer must establish that the collection of the tax liability would cause economic difficulties or, as an alternative, when the compelling considerations of public policy or equity identified by the taxpayer provide a sufficient basis for accepting a payment lower than the total.
An offer submitted without the required fees is subject to rejections without appeal. After the IRS receives the offer, the IRS has two years to make a decision. If the decision is not made at that time, the offer is automatically accepted. A transaction offer will have no effect on a tax lien.
The lien will remain in effect until the IRS accepts the offer and the full amount of the offer has been paid in full. Once the amount offered has been paid, the taxpayer must request that the IRS withdraw the tax. A transaction offer will stop taxes under section 301.7122 (g) () of the U.S. Federal Tax Regulations.
UU. That regulation states that the IRS will not tax a taxpayer's property while a valid transaction offer (an offer that has been accepted for processing) is pending and, if rejected, for thirty days after the rejection. If the taxpayer appeals the denial, the IRS cannot collect while the appeal process is ongoing. If there is a rate in effect when the offer is submitted, it is not released automatically.
In 2004, the IRS issued a consumer alert regarding promoters' claims to settle penny-per-dollar debts through the OIC program. The warning was aimed at companies that charged high rates to consumers who might not be eligible for the program; all other means of payment would have to be exhausted, including installment payments. A recommendation is to consult with the Better Business Bureau before hiring any company to resolve tax issues. Sometimes it's possible to wipe the slate clean with a huge discount.
If you qualify for something known as a transaction offer, known as an offer or OIC, the IRS will accept less than the amount a taxpayer owes on a tax bill and cancel it. A returned offer is different from a rejection because there is no right to appeal when the IRS returns the offer. When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment along with Form 656. The 20 percent payment is generally non-refundable, meaning it won't be returned to the taxpayer even if the offer is rejected or returned to the taxpayer without their acceptance. A transaction offer is a type of agreement between the taxpayer and the IRS that describes and settles the taxpayer's tax obligations for less than the current balance due.
The revenue officer or special procedures officer can help you find a way to make your offer acceptable. Flat-rate cash offer: Taxpayers can choose to pay the offer amount in a lump sum or in installment payments. In particular, the IRS has always preferred offers from people with bleak financial perspectives because of their advanced age, especially those over 60. A compromise offer is an alternative if a taxpayer is unable to pay all of their tax debt to the IRS when it is due.
Taxpayers who are currently in open bankruptcy proceedings are generally not eligible for a transaction offer. Then, during the time the IRS is considering the offer, the taxpayer must continue to make monthly payments to keep the offer up to date. This offer is based on the statement that there are doubts as to whether the assessed tax liability is correct. Follow the instructions on Form 433-A (OIC) to calculate and show the IRS how you arrived at your minimum bid.
You should weigh the pros and cons of the offer in terms of commitment, considering the other options available to you. . .