An offer in compromise can make you happy: “Oh boy, the IRS said yes, and my tax debts are over!” Or it can frustrate you. Let’s go over how to navigate the IRS settlement guidelines and see what an OIC entails.
Here’s the good news:
- An OIC can be a fresh start from your IRS debt.
- You no longer have to worry that the IRS will seize your wages or bank accounts.
- Your credit score will no longer show any tax liens against you — the IRS releases them all.
- IRS collections are put on hold and the compromise is investigated. And then — peace, ah, peace — from IRS certified-mail letters and visits from IRS revenue officers.
- You put the debt behind you and you can go back to saving for retirement.
But here’s some of the bad news:
- The IRS will dig deeply into your finances.
- You have to tell the IRS where you work and bank and you must list your assets, including your house, cars, valuables and retirement accounts.
- The IRS will look at your paystubs, tax returns, bank statements, business profit and loss statements and proof of payment of monthly bills.
- After acceptance of the OIC, the IRS will put you on a five-year probation, requiring full compliance in filing and paying taxes. Not playing ball with all IRS expectations will default the settlement.
But wait! It gets even more dicey:
- An OIC is not a quick fix — it can take the IRS a minimum of nine to 12 months to investigate, and another six months if an appeal is needed. The IRS allows five to 24 months to pay the settlement.
- If you want to pay credit card, mortgage or car loan monthly bills, think again. The IRS may effectively take over your budgeting.
- If the IRS determines it can collect what you owe, it will reject your offer, but you can appeal.
- The settlement amount is not based on fairness, but on collectability.
- It may not work at all! The IRS recently rejected 60 percent of the offers it received: 41,000 rejections out of a pool of 68,000 submissions!
Let’s see where that leaves us:
- An OIC can be a wonderful way to rid yourself of the IRS bugging you.
- You need to consider it from all angles to make sure it’s the right move for you.
A compromise is not the only way to clear the IRS out of your life. The agency can agree that you owe debt, but not force you to repay it — the IRS terms it currently uncollectible and puts you in its bad debt category and leaves you alone. The IRS has 10 years to collect the taxes. You could let the time frame expire rather than compromising. Bankruptcy may be able to eliminate taxes too. See what’s in your best interest.
The point is that you have options, and you should talk to a professional if you’re having tax problems.
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