Offers in Compromise (OIC) - How to Settle IRS Liabilities

Offers in compromise are a way that you could potentially settle an IRS liability for less money than you owe. If you have a substantial tax bill that you cannot afford to pay, you might want to consider looking at this option. Here are the basics of how to settle IRS liabilities through an offer in compromise. 

Grounds

In order to file for an offer in compromise, you have to have a legitimate reason. The IRS will consider accepting one of these offers for a few different reasons. One reason that the IRS might consider allowing this compromise is if they believe that the tax is not going to be collectible. For example, if the individual owes a large tax bill and they have expenses that are more than they can afford to pay, there is little chance that they will be able to pay their tax bill. Another reason that the IRS might accept one of these offers is if the individual can prove that paying the bill would create a significant financial hardship. The last reason that the IRS might be willing to accept an offer in compromise is if they believe that the tax bill is not correct. In order to prove this, the individual will have to submit some type of evidence that demonstrates this.

Payment

If you have your offer in compromise accepted, there are a few different payment methods that you can use. First of all, you can pay the IRS with a lump sum. If you do not have enough money to pay the entire bill, you could agree to a short-term periodic payment plan. The last option that you have is to use a deferred payment plan.

Filing

In order to get an offer in compromise, you have to file the necessary paperwork with the IRS. In some cases, you might utilize an attorney or some other type of service to help you complete this process. Just be careful with many of the agencies that claim to be able to settle your tax debt for pennies on the dollar, because most of them are not legitimate.

There are two different forms that you can use in order to submit an offer in compromise to the IRS. The first form that you can use is called Form 656 Offer in Compromise. This form is what you will use if you believe that you will not be able to afford to pay the tax or it is going to create an unnecessary financial hardship. The second form that you can use is called Form 656-L. This is the form that you are going to use if you doubt that you actually owe the tax bill that you have been given. If you are submitting the offer in compromise because you cannot afford to pay or because of financial hardship, you will also need to submit form 433-A.