06 Jun Pros and Cons of Offer In Compromise (OIC) Explained
It is often said there are two things in life we can’t escape – death, and taxes. While on one hand death seems to be an acceptable (and somewhat expected) end to a possibly exciting life, taxes, on the other, usually leave us confused and frustrated, often scared and in a total state of panic. Jokes aside (who’s joking?), not everything is as dramatic as it seems at first glance. The IRS offers solutions which are all a matter of careful planning and getting familiar with the conditions.
In this article, we’ll talk about the essential elements of the OIC to help you handle your finances.
An Offer in Compromise Explained
Most of us are relatively confused as to what an offer in compromise means and whether we’re eligible at all. According to the IRS, an offer in compromise allows you to settle your tax debt for less than the full amount you owe. An OIC is your tax reduction request to the IRS. By sending this request, you are asking for your tax bill to be significantly reduced to the federal government.
An OIC can be very helpful if you find that your current turnover doesn’t cover your taxes and that by paying it, you’ll find yourself in a dead-end financial situation. In essence, you negotiate a new tax amount with the IRS that’ll make it possible for you to continue to run your business.
Do I Qualify for an OIC?
Although the qualifications are pretty strict, you may qualify if:
- You are in the “doubt as to collectibility” category: The IRS finds you won’t be able to pay your tax in full, now or in the future
- You are in the “doubt as to liability” category: You find your tax payment wasn’t assessed correctly from the start and you want to dispute it; this is when you fill out the 656-L form to initiate the OIC process with the IRS
- There could be extraordinary circumstances in the future that would cause any economic hardship, preventing your ability to pay your taxes regularly
Pros and Cons of an OIC
While an OIC can be the best solution for a struggling company, there are also some downsides to the deal. Here are a few pros and cons of this tax remedy to your unresolved IRS debt.
- Affordable payments: You can negotiate your debt to a reasonable, affordable amount or create a payment plan that fits in your budget
- Stop wage garnishment: A well-negotiated OIC can stop your seizure of assets
- Long-Standing obligation resolution: An OIC can help start your journey to financial recovery by eliminating the worry that comes from owing to the IRS. It relates to “candidates” who have struggled with a tax burden for years
- The IRS can turn against you: If your OIC is rejected, the IRS can use the information you disclosed to rush its collection efforts against you
- It’ll take time and effort: The IRS will require you provide a significant amount of information such as bank records, pay stubs, vehicle registrations, various financial documents and more
- You can no longer claim tax credits and benefits: Once you file for an OIC, you can no longer use credits and benefits during the following year
- Your OIC becomes part of the public record: Once your OIC is accepted, the fact you’ve settled your tax debt in this manner becomes part of the public record, i.e., your financial transactions become public knowledge
The entire process can be nerve-wracking and end up costing you more than your tax obligation altogether. Plus, there are a lot of elements of the process that can turn against you in the long run. If you need to get more information on the matter and get advised by professionals, contact us.