Unresolved tax debt can feel like a looming storm casting a shadow over your financial well-being. This financial burden can trigger stress and financial instability, whether it’s a business or personal tax debt.
Thankfully, the IRS acknowledges that your current financial capacity may not allow you to settle the full amount you owe. That’s why it offers an offer in compromise (OIC) as a potential solution, under many circumstances. If you qualify for this program, you can pay a fraction of your total tax debt.
OIC can be a ray of hope during a difficult time, but is it the right solution for you? Familiarizing yourself with the qualifications can help you decide whether to explore this opportunity.
What is an Offer in Compromise?
If you qualify for OIC, the IRS allows you to make a lump sum or periodic payments that are a fraction of your total tax debt. You’re likely to qualify for this program if you can convince the IRS that settling your full tax debt would catapult you into significant financial hardship. To evaluate if you qualify for the program, the IRS will carefully examine:
- The full value of your assets
- Your source of income
- Your daily expenses
These perimeters can help the IRS determine if you genuinely need assistance settling your tax debt. The IRS will also check to confirm that you’ve been tax-compliant for the ongoing year.
Do you qualify for OIC?
The IRS explores two main criteria to determine if you qualify for an OIC. First, they will explore all collection options to see if you can afford to settle the full amount. You may qualify if they establish, beyond a reasonable doubt, that due to your limited assets, collecting the full amount you owe is unlikely.
Secondly, the IRS will analyze if paying the full amount will cause you undue future financial hardship. You qualify for OIC if settling your entire tax debt will leave you unable to meet your basic needs.
Even if it’s likely that you could qualify for OIC, demonstrating that you meet one of these criteria can feel like an overwhelming tax during such a trying time. It can help to rely on a reliable legal group to gather necessary documentation for building and negotiating your case.