A transaction offer is a tool that many taxpayers can use to settle their federal tax debts. If a person owes money to the Internal Revenue Service (IRS) but can't pay the entire debt, they may be able to offer the IRS a smaller, more affordable amount as a settlement. This is known as a commitment offer (OIC). The offer may include a one-time payment or a series of payments over a period of months.
Unlike a traditional IRS payment plan, if the IRS accepts the OIC and the taxpayer pays as agreed, the IRS will forgive the rest of the taxpayer's debt. A “compromise offer” is a little-known but remarkably effective way for thousands of people with problems with the IRS to routinely eliminate tens of thousands of dollars in tax debts. It is a federal program that allows you to pay off your tax debt for less than the full amount you owe. Sometimes significantly less, especially if you come from a low-income family.
In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The IRS will keep any refund, including interest, that may be due on tax returns filed up to the date the IRS accepts the offer. Before making an offer to the IRS, check your eligibility and understand what the IRS is considering. If a taxpayer submits a lump sum cash offer, they must include on Form 656 a non-refundable payment equivalent to 20 percent of the offer amount.
A periodic payment offer is defined as an offer in which the taxpayer makes six or more monthly payments within 24 months of accepting the offer. You should weigh the pros and cons of the offer in terms of commitment in light of the other options available. Periodic payment offer: An offer is called a periodic payment offer under tax law if it is paid in 6 or more monthly installments and within 24 months after the offer is accepted. You can use the Offer in Compromise prequalification tool to confirm your eligibility and prepare a preliminary proposal.
A compromise offer (OIC) is a proposal to pay the California Department of Tax and Rate Management (CDTFA) an amount less than the total tax or fee obligation owed. Step-by-step instructions and all forms for submitting an OCI can be found in the commitment offer brochure, form 656-BPDF. Flat-rate cash offer: Taxpayers can choose to pay the offer amount in a lump sum or in installment payments. When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment along with Form 656. If you offer to pay along a payment plan, your first payment should be the monthly amount suggested in your plan.
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