Serious tax liability can take a toll on your business and personal life. If you owe too much to the Internal Revenue Service (IRS), it can be difficult to enjoy each day. Looking for relief, you may start noticing ads for businesses that will help you with an Offer in Compromise (OIC). Before you take the bait, take the time to understand what you are getting into—and whether you can really afford it.
An OIC is a practical tool offered by the IRS to taxpayers who consider themselves in overwhelming tax debt. Whether due to an IRS audit, a tax controversy, or if you are just way behind on your taxes, you may quickly find yourself loaded with a tax assessment, related penalty, and ever-growing interest. An OIC provides the opportunity for you to make an offer to the IRS of an amount you believe is realistic and possible for you to pay to the IRS.
But, it is important to understand a fundamental reason for an OIC is to allow the IRS to take its best shot at whatever money it can collect off your tax debt. It is not a “fresh start” bankruptcy for taxes—it will likely take all you have, or at least as much as the IRS believes it could bring in if it collects on your debt.
Is an OIC the answer?
With an Offer in Compromise, the IRS looks at your reasonable collection potential (RCP). This important figure is how much the IRS believes it can collect from you. The IRS will likely not approve an OIC for less than your RCP. Learn your RCP, and you can better understand how the IRS would view your OIC. A practical, under-the-radar way to learn your RCP is to use the IRS Offer in Compromise Pre-Qualifier Tool.
Gather all your financial support and take a day to work your way through this online tool. Believe it or not, the IRS does not retain information you enter. It is an online workbook that can make things clear quickly.
Your OIC payment options
Let’s say you go through the OIC process and your offer is accepted. Keep in mind, in 2024, the IRS received 33,591 OICs. Of these, the IRS accepted 7,199 offers.
When you apply for an OIC, you also submit a payment that represents 20 percent of the amount of your application. This payment should generally be considered nonrefundable, even if the IRS does not accept your offer. Regardless of the IRS decision, it will be applied to your tax liability.
There are two options for paying your OIC, including:
- Lump-sum payment: If your offer is accepted, you will pay the balance due in five or fewer payments, within five or fewer months.
- Periodic payment: If your offer is accepted and you choose this payment mode, you will pay the total due in six or more installments within 24 months of the acceptance of your offer by the IRS.
If you have a challenging tax liability, these payment options are not for the faint of heart. They are designed to pay back what the IRS believes it could collect, without the IRS having to take you through the unhappy and uncomfortable process of collections.
An OIC may be a good option—but do your homework first. Speak with a tax attorney experienced with OICs, and they should be able to bring you up to speed on what you will be looking at. Or work through the pre-qualifier to learn what the process will ask of you—in data and money.
Still considering an OIC?
Struggling with a serious tax liability can limit business growth, reduce your ability to meet economic challenges, and affect your physical well-being. If you are considering an OIC, the team at Robert J. Fedor, Esq., L.L.C. offers trusted guidance to your unique situation. Contact us at 440-250-9709 or set up a consultation. We serve domestic and international clients from offices in Cleveland and Chicago.
If you want the bottom line about how an Offer in Compromise may help you, download our free guidebook, Resolving Tax Debt With an Offer in Compromise.
