OIC! I can settle for less with the IRS
Owing past taxes to the IRS is probably the most dreadful nightmare. Past taxes can grow very fast as interest on it gets calculated on a daily basis. When you owe past taxes, the IRS can garnish your wage, put levy on your account or intercept tax return without even obtaining judgment against you.
However, if you want to take care of your past taxes, the IRS is most likely to work with you. The offer-in-compromise (OIC) would let you settle for less than what you owe on your taxes. This is the only option where you can settle for less with the IRS. But, it's not easy to win a settlement with the IRS. The IRS is less likely to settle when it believes that the tax player is capable of paying the entire amount. You can win a settlement from the IRS under the following circumstances.
- Doubt as to collectivity: When the taxpayer's earning isn't enough to meet her tax liabilities and she owns no asset, the IRS may agree that the taxpayer has no recourse to payoff her taxes and may agree to settle for less amount.
- Doubt as to liability: A situation may arise when both the tax payer and the IRS isn't confident about the tax liability. Hence, the IRS may agree to accept lower payment on the alleged account.
- Effective Tax Administration: When effective tax administration would cause undue hardship on the taxpayer, or would be considered as 'unfair' or 'inequitable', the IRS may consider to settle for a lower amount.
What are the negatives of applying for OIC?
Applying for offer in compromise has its downside too. It's not as easy as calling up the IRS and settle. You'd have to go by the formal way of filling in the forms with all necessary documents and pay the fees of $150.
Getting approval for the OIC is a lengthy process, you'd be required to disclose-your pay stubs, bank statements, vehicle registration details and an odd assortment of various other financial details to the IRS.
Taxpayers applying for the OIC find themselves submitting truck load of documents to the IRS, with no guarantee that their application would be granted. In the community property states, you may have to submit income details of your spouse as well even when you're filing alone. These documents can later be used by the IRS.
Further, the interest on the account would keep accruing, hence, you may end up paying more than the initial amount.
Hence, if you're not sure about receiving offer-in-compromise, you might avoid applying for it.