An Offer in Compromise (OIC) is an official Internal Revenue program that allows taxpayers to resolve their debt with the government for less than the actual amount owed.
Here are the key items everyone should know about the Offer in Compromise, or OIC, arrangement:
An OIC is essentially a method the IRS uses that lets you pay less on what you owe, and lets them get the most money out of you based on your ability to pay. When a statute date threatens the government's ability to continue pursuing your tax bill, the IRS often tries to "make a deal" with taxpayers. That's basically what an OIC is.
For taxpayers who successfully file an OIC, the benefits can be enormous. Sometimes you can end up paying just a small percentage of what you actually owe. After that, you are released from the debt.
Another key advantage is the fact that the IRS will stop all collection activity once an OIC is signed.
Whatever the agreed-upon amount is between you and the IRS within the OIC, you'll usually pay 20 percent of it up front, and the remaining amount in five equal monthly installments afterward. For example, if you and the IRS sign an OIC that settles a $20,000 tax debt for $5,000, then you'll have to pay $1,000 initially, and $800 in the next five monthly payments. You can pay in fewer than five installments if you want to, but most Offers in Compromise arrangements work this way.
You can either file the OIC application yourself or hire a professional, like a CPA or attorney, to do it for you. When individual taxpayers file OICs themselves, the acceptance rate is about 30 percent. When an attorney or CPA file one for you, the acceptance rate is much higher, usually well above 90 percent. Even if you have to pay a fee to the attorney or CPA, the fact that you have a much better chance of approval is worth the expense.
Also consider that professionals know what is the "right amount" to propose to the IRS, based on their experience working with the government's tax collectors. Individuals who file their own OICs tend to offer more to the IRS than necessary, and of course, the government will usually accept such offers. But then you are stuck with an OIC that is far in excess of what an attorney or CPA could have negotiated for you.
O'Hare Associates is a CPA firm that can help taxpayers who owe money to the IRS and assists anyone who needs business advice, IRS representation, financial planning or accounting services. If you owe money to the IRS and intend to file an OIC, it's best to get professional help in order to minimize the amount you end up paying. Filing an Offer in Compromise yourself can end up costing you much more money, which is why it pays to seek expert assistance.
