An Offer in Compromise (OIC) is a strategy taxpayers can use to resolve their back taxes. Taxpayers who can’t afford to pay their debt in full or over time with an installment agreement can submit an OIC to the IRS. If you’re considering an OIC, you likely have questions. These are some of the frequently asked questions from taxpayers submitting an OIC.
What are the National and Local Standards?
To determine how much of your income can be used to pay your back taxes, the IRS uses National and Local Standards. The National Standards outline how much of your income can be allocated to necessities like food, clothing, and other items. The Local Standards, which are specific to your location, help determine how much of your monthly income you can spend on housing, utilities, and transportation.
Read our latest success story to see an example of how National and Local Standards impact an OIC.
Do I need to keep paying my installment agreement?
You may already have an installment agreement with the IRS to resolve your tax debt. However, you may now qualify for an OIC due to a change in your financial situation. You do not have to continue making payments on your installment agreement while the IRS considers your Offer. If, for any reason, your Offer is not accepted, your installment agreement will be reinstated—as long as you do not have new tax debt.
Will a lien be filed?
The IRS may file a Notice of Federal Tax Lien while considering the Offer or for Offers that will be paid over time. If the Offer is accepted, the tax lien(s) will be released within 35 days after the final payment has been received and verified.
Do I need to be up to date with my tax obligations?
Yes, you must file all your required personal and business tax returns before submitting an Offer. In addition, you need to be current on any estimated tax payments you may be liable for.
My Offer was rejected. What options do I have?
If your OIC is rejected, you have several options:
- Appeal the rejection within 30 days using the instructions on your rejection letter.
- Send the IRS a payment for the total tax debt you owe.
- Request a full or partial pay installment agreement for the tax debt.
- Request hardship status.
What happens if the IRS accepts my OIC?
Resolving your back taxes with an OIC can be a huge relief. However, it’s essential to be aware of all the details regarding your Offer. Otherwise, you can find yourself in this situation again. If the IRS accepts your Offer, you must pay the amount you offered to the IRS, at which time they will release any liens filed against you. Failing to pay the amount you offer or accruing additional tax debt at any point in the next five years will result in your Offer defaulting.
What happens if the Offer defaults?
If the Offer submitted to the IRS defaults, the IRS will attempt to collect the full amount of tax debt you owe. This can mean a lien or a levy. You’ll also have to pay penalties and interest that may have been forgiven under an Offer in Compromise.
Filing for an OIC is complicated. If you have questions about submitting an Offer to the IRS, consider getting help from a licensed tax professional.