How to Qualify for an IRS Offer in Compromise (OIC)

An offer in compromise is a settlement offer with the IRS available for those who meet specific qualifications. Offers are not guaranteed to be accepted at the time of applying and interest and debt collection attempts continue during the review process. Keeping this in mind, it is very important to meet all of the requirements when submitting the application. The two different types of offer in compromise are streamlined and standard. Both have specific legal grounds to qualify.

Streamlined Offer in Compromise

In order to qualify for filing a streamlined offer in compromise, you must be either a wage earner, unemployed, or self-employed with no employees and gross receipts under $50,000. You must have a total household income of less than $100,000 at the time of filing. Additionally, the total amount of tax debt owed cannot be more than $50,000. Additionally, you cannot be filing for bankruptcy at the time of applying for the offer in compromise.

The greatest benefit of this program includes greater flexibility for accepting offers. In other words, the IRS is more willing to accept your offer and end your tax bill. Additionally, the IRS sends fewer requests for financial information with a streamline offer and contacts applicants by phone when gathering information instead of by mail.

Standard Offer in Compromise

The traditional offer in compromise does not set a limit on the amount of debt or total income. Instead, it takes into account a person’s ability to pay, total income, expenses, and asset availability. In order to qualify, you must file all of your tax returns up to date, make the estimated tax payment for the current year, or tax deposits for the quarter if you are self-employed. As with the streamline offer, you cannot be applying for bankruptcy when you make the offer. Finally, the IRS will keep any tax refund that would have been given during that tax year to be deducted from your tax debt.

Application Process

If you meet the above criteria, you can file for an offer in compromise by filling out IRS Form 656. The form must be submitted with a $186 non-refundable deposit. The deposit will be applied to your overall tax debt after processing. You must also provide either a 20% payment of your offer, along with less than five other subsequent payments, or the first payment with your specified terms. Payments must be made during the application process, regardless of whether your offer has been accepted.

If you are considering making an offer in compromise and need assistance with the drafting or are having trouble contacting the IRS, consult with a local tax attorney for advice and assistance.