October 31st, 2022 in
What Are the Pros and Cons of Offer in Compromise? An Offer in Compromise may be one option for you to get rid of tax debt, but there are both good and bad aspects of this process. Before making the decision to use this method, it is very helpful to understand what you can expect from it.
The pros include:
- Typically, this can allow for affordable payments and debt reduction for those who qualify. It may allow you to have a better opportunity to pay off the debt you have without having to liquidate your assets to do so. The goal of this method is to negotiate your obligation to an affordable level that you can pay off within a few payments or a single payment.
- It can help to prevent any seizure of property that may occur in situations where the IRS has the legal right to take this action. The IRS can garnish your earnings and seize valuable assets if you fail to pay your tax debt. With an OIC, it is possible to settle the debt, so this risk is alleviated.
- You are achieving a long-standing solution. If you have had tax debt for a long time and you have struggled to repay it, this method allows you to finally get rid of that debt. If the offer is accepted, you can move forward.
The cons include:
- You may not qualify. Not everyone qualifies for OIC. This method is typically best for people who have very few assets and who are low income earners.
- With this method, you are able to reduce what you owe. However, you also surrender your right to tax credits that you may have access to each year. This could mean your tax return could be lowered each year going forward.
- OIC does create a public record. That means that anyone that is interested and takes the time to look for this information can discover that you have settled your debt through OIC, which means you paid less than what you owed.
Do I Qualify for IRS Offer in Compromise (OIC)?
One of the most challenging aspects of OIC is qualifying for it. Ultimately, the IRS has to determine that this is the right decision based on what is best for the IRS. That may not always be what is best for you, though.
The IRS may decide to do this if there is any doubt about the liability of the debt through a genuine dispute that exists on the debt or the amount. The IRS may also accept this offer if there is doubt that the amount is fully collectible. That could be because there is doubt that the amount that is owed can be repaid with the taxpayer’s current assets and income. The IRS may decide that you cannot afford to pay the debt in full.
A third situation occurs when the IRS finds the OIC is effective tax administration. That is, there is no doubt that you owe the debt and that the full amount of the debt can be collected. However, requiring you to pay the debt would create some type of economic hardship for you. Another reason would be that requiring payment in full would be otherwise inequitable or unfair due to special circumstances. This final method is the most difficult to secure since it can be rather ambiguous.
If you feel that the IRS should accept an Offer In Compromise on your behalf, it is critical that you be able to state why that is. That is not as easy as it sounds, though. In some situations, the IRS will see that you have a stable income and that you own valuable assets. Why should it agree to settle a debt you owe for less than what you are required to pay? Because of these complexities, if you plan to seek an OIC, we highly recommend working with a legal team to do so.
How the Steburg Law Firm Can Help
Steburg Law Firm has ample experience helping our clients to achieve OIC in California. If you are unsure if you can use this method or want insight into the legal options that may be available to help you with it, reach out to our team immediately. We recognize how important this may be to you, but we also want to ensure you get the best possible opportunity to show the IRS that an OIC is the best decision in your case. Set up a consultation to discuss your needs with us today to learn more.