IRS Publishes New Guidance on Offer in Compromise (OIC) Program

As a general rule, the Internal Revenue Service (IRS) expects U.S. taxpayers to pay the full amount they owe. However, the IRS also recognizes that some taxpayers – both individuals and businesses – will find themselves in circumstances in which fully paying their outstanding tax liability is not tenable. In these circumstances, the IRS allows qualifying taxpayers to submit an offer in compromise (OIC). The IRS recently published new guidance regarding the OIC program, which Virginia tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, discusses below:

Determining a Taxpayer’s Eligibility to Submit an Offer in Compromise

In its new guidance, the IRS explains that the offer in compromise program offers a solution, “for a select group of taxpayers.” In other words, not all taxpayers qualify. The IRS determines taxpayer eligibility on a case-by-case basis taking into consideration four primary factors:

• Ability to pay
• Income
• Expenses
• Asset equity

Assessing these factors, the IRS makes a determination as to whether fully paying a taxpayer’s outstanding tax liability would create a financial hardship. If paying the full amount owed is likely to result in financial hardship, then the IRS will consider settling a qualifying taxpayer’s tax debt upon submission of all required documentation and an initial payment. If a taxpayer proposes monthly installment payments in its OIC application, the taxpayer must also make these payments while awaiting the IRS’s decision.

Applying for an Offer in Compromise with the IRS

Applying for an offer in compromise is not a simple process. If a taxpayer submits an incomplete application, fails to file all required tax returns or fails to make the required initial payment, the IRS will simply return the application to the taxpayer. As a result, it is strongly recommended that taxpayers engage an experienced Virginia tax lawyer to prepare their OIC applications and communicate with the IRS for them.

To assist taxpayers in determining their eligibility and preparing their OIC applications, the IRS has published a series of videos. However, while the IRS intends these videos to be helpful, it also makes clear that they should not serve as substitutes for professional tax advice.

More Information About the IRS’ Offer in Compromise Program

For U.S. taxpayers who are considering an offer in compromise, it is extremely important to make informed decisions. In some cases, improperly submitting an OIC application can have unintended adverse consequences—including triggering an IRS audit or investigation. With this in mind, in addition to scheduling a confidential consultation at Thorn Law Group, we encourage taxpayers to review the following resources to learn more:

• Should You Submit an IRS Offer in Compromise? 5 Questions to Ask Yourself Before You File
• What You Need to Know Before Filing an Offer in Compromise with the IRS
• IRS Issues Updated Warning about Tax Scams Targeting U.S. Taxpayers

Request a Confidential Consultation with Virginia Tax Lawyer Kevin E. Thorn

If you need to know more about the IRS’ offer in compromise program or the other options you may have available for resolving your (or your company’s) tax debt, we encourage you to get in touch. To request a confidential consultation with Virginia tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, call 703-752-3752, email ket@thornlawgroup.com or tell us how we can reach you online today.