How To File an Offer in Compromise

A probable resolution for your IRS problems is an OIC or an Offer in Compromise. The IRS can make deals with taxpayers. An OIC is an agreement reached between the IRS and you that settles your tax liability. In some situations, the IRS can take less than the full payment.

You can tell if you qualify for an OIC by examining the IRS Form 656 booklet.

To be eligible for an OIC, you must prove to the IRS that you meet one of these conditions:

• Doubt as to liability – This is uncertainty that you actually owe the debt or that the estimated tax is right.
• Doubt as to collectibility – This is uncertainty on the IRS's part that it will be able to collect your tax bill from you now or in the future.
• Effective tax administration – You must prove that paying the bill owed would create a financial crisis that would be unfair and inequitable.

The Best Offer

The money that the IRS could take from your future income plus the realization value of your assets is the amount of the OIC.

The figure the IRS could collect if they seized your assets and sold them today is the realization value of your assets. Debts associated with the property will not be included. To determine this sum, the IRS utilizes a "quick sale value", meaning 20% less than the fair market value.

When coming up with this amount, you can exclude most of your household assets and personal effects. You'll have to include any luxury items including fur coats and antiques.

The sum of your retirement plans need to be included. You can deduct their amounts by any income tax and penalties for early redemption you would need to pay after cashing them in. A written explanation of how you came up with this figure needs to be included.

The IRS Collection Process (IRS Publication 594) has a roster of items that you may exclude from asset calculation.

Your future income is determined by deducting your important living expenses from your monthly income. This will be your disposable income. The number connected to the payment plan you want to use is then multiplied with this amount.

Payment Plans

• Deferred Offer � Multiply your future income by the number of months remaining on the statute of limitations for your taxes. This is often 120 months minus how many months have lapsed since the IRS evaluated your taxes, if it is less than 48 or 60.
• Short-term Deferred Offer � You will settle the amount of the offer after 91 days but within two years of the IRS notification of acceptance. Multiply your future income by 60.
• Cash offer – payment in a lump sum within 5 months of IRS acceptance notification (future income x 48).

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