Tax Law Los Angeles
In the circumstance that you have found yourself in the unfortunate position of owing money to the IRS or another tax institution, things might seem overwhelming and hopeless. You need options – what to look for, how to find them, and how to take the best advantage, to all parties’ satisfaction.
In the case that you owe back taxes, an Offer In Compromise, or OIC, is one of the most attractive options out there.
But what is an OIC? And how do you make the most of them?
The Offer In Compromise is when a taxpayer proposes to pay less than the full amount of back taxes due on an account. The OIC program is to allow individuals with substantial debts to start fresh so that they keep up to date with future taxes.
In short, an Offer In Compromise is a way to work out a deal with the IRS to pay back a percentage of what is owed. It’s a much more attractive offer than paying what you owe, in full, plus penalties.
Offers in compromise can vary greatly in amount, depending on the taxpayers’ equity, expenses and future earning potential. Current IRS guidelines allow this lump sum to be paid in installments, over a period up to two years. The total payments are higher for a lump sum offer in compromise, however.
The application process can be lengthy, taking from six months up to a year, sometimes even longer. You will not be expected to make payments on your back taxes while your proposal is under review. You MUST, however, make sure to keep up with every and all current tax payments, including estimated income tax payments, quarterly, as well as federal payroll tax deposits. Failure will automatically discredit your OIC proposal.
When you file your proposal, the first payment must be made. The initial payment is 20% of what you owe, for a lump sum OIC. For a payment plan, you must submit your first payment. If you’re paying on an OIC installment plan, you will be expected to make each payment, as they come up, while your proposal is being considered. In the case that your OIC isn’t accepted, those payments will be applied towards your back taxes.
If you fail to comply with any conditions of the Offer In Compromise, it can immediately be nullified, allowing the IRS to take moves to collect your entire balance, plus penalties, fees, and interest. An OIC can be nullified if the IRS has reason to believe you falsified any information on your proposal or that you’ve concealed assets.
You might be weighing your options, still deciding if an OIC is the best option for you. Here are some things to consider:
Debt reduction and more affordable payments: The first and most obvious reason to consider an OIC is it could save you substantial amounts of money. An OIC can make your outstanding balance much more manageable, and prevent your wages and assets from being garnished at a later date.
Stop Collection Activities: If you’ve ended up in bad standing with the IRS, they could freeze your assets, including your bank account. Having your assets frozen can force you to live paycheck to paycheck, making it even harder to get out of debt. An OIC is a chance to break the cycle.
Resolution: Having an outstanding balance with the IRS can be like living in the shadow of a gallows, or having a ton of bricks on your chest. Coming to a solution allows you to breathe easily.
Strict Qualifications: It can be hard for an individual to meet the income and asset guidelines to qualify for an OIC. Those best-qualified for an OIC are low-income taxpayers, and people with very few assets for the IRS to seize.
Waiving Of Tax Benefits: When you make an Offer In Compromise, you forfeit your right to claim any tax benefits and credits, which could lower your refund significantly.
Public Record: For those that are trying to keep their tax records private, if your OIC agreement is accepted, it immediately becomes a matter of public record, for anyone to see.