Filing taxes is something that most people don’t look forward to. This is especially true if they’re going to owe the Internal Revenue Service (IRS) money. Some people may not be able to pay what they owe, which can be a scary realization.
The IRS provides options for some people who can’t pay what they owe. One of those options is the Offer in Compromise (OIC). This is a formal agreement that allows eligible taxpayers to settle their tax debt for less than what they owe.
What is an OIC?
An OIC is essentially a deal between you and the IRS. If the agency believes that you genuinely can’t pay your full tax liability, either through a lump sum or in installments over time, it may accept a reduced amount as full payment. This isn’t a loophole—it’s a legitimate program designed for those who are struggling financially and don’t have assets or income sufficient to cover their full tax bill.
The IRS considers three main factors when evaluating an OIC:
- Your ability to pay
- Your income and expenses
- Your asset equity
If the IRS determines that the offered amount reflects the most they could reasonably collect within a reasonable time, they may accept your offer. You can opt for a lump sum or a periodic payment option for the OIC.
Not everyone qualifies for an OIC. Before applying, you must be current on all tax filings and, if applicable, have made any required estimated payments. You’ll have to fill out an application and pay a fee, as well as a partial payment on what you owe.
Having to deal with the IRS when you owe them money can be challenging and frustrating. There are times when the OIC will be the most appropriate option, but there are others that you may have to consider. Working with someone who understands the options for these matters may be beneficial because they can explain them to you so you can determine how to proceed.