Offer in Compromise (OIC) is a tax settlement option used by the Internal Revenue Service (IRS) to settle federal tax debt for less than the full amount owed. The IRS has been given the authority by the federal government to accept or reject Offer in Compromise offers. The Internal Revenue Service will accept an offer if they believe collection of the tax debt is unlikely, the amount owed is in question, or it will save the federal government money by not declaring the debt currently not collectible or delay payment with an extended installment agreement.
Approximately 80% of Offer in Compromises are initially denied. More offers will be accepted through the negotiation or OIC appeal’s process. The IRS does not have to accept a Minnesota taxpayer’s OIC offer and if the IRS chooses to refuse the offer, Minnesota taxpayers do not have a legal right to sue the IRS.
Penalties and interest will continue to accrue until an Offer in Compromise is accepted.
Offer in Compromise can be complicated, time consuming and expensive. If the Internal Revenue Service decides not to accept a Minnesota taxpayers OIC offer, the IRS will have detailed information to continue their aggressive collection actions. Any Minnesota taxpayer who needs more information about Offer in Compromise should contact a tax professional for help. IRS tax settlement options will vary and Offer in Compromise may not be the best choice for all Minnesota taxpayers who owe IRS tax debt.
Qualifying for Offer in Compromise in Minnesota
Minnesota taxpayers will have to meet the following requirements to qualify for an Offer in Compromise:
Doubt as to Collectibility – An Offer in Compromise may be accepted if the IRS believes they will not be able to collect IRS tax debt from the Minnesota taxpayer.
Doubt as to Liability– If there is doubt about the amount of tax liability which has been assessed to the Minnesota taxpayer the Internal Revenue Service may accept an Offer in Compromise. This condition is not frequently met.
Effective Tax Administration– There may be some Minnesota taxpayers who can not pay their outstanding federal tax debt with out creating an economic hardship which would be inequitable or unfair. If the IRS agrees, they may accept the Offer in Compromise. This condition is most frequently accepted for the elderly and handicapped.
Rejection of Offer in Compromise in Minnesota
The Internal Revenue Service grants approximately 25% of the initial OIC offers, but they may be willing to negotiate further to find an agreeable OIC offer. If the offer is denied however, the IRS is required to send written notification to the Minnesota taxpayer to identify the reasons the offer was rejected. If the IRS claims the offer is too low, they should provide information on the amount of offer they would consider reasonable. The Internal Revenue Service must provide information about all OIC offers to Minnesota taxpayers under the Freedom of Information Act.
Minnesota taxpayers who are appealing an Offer in Compromise denial must make their appeal with in 30 days from the date of the Offer in Compromise denial notice. Minnesota taxpayers will only need to resubmit their IRS OIC forms a second time if there has been a drastic change in their financial status or if the Offer in Compromise deadline has passed.
Minnesota taxpayers who are considering Offer in Compromise may want to contact a tax professional for help in the OIC application or OIC appeals process.
Appealing an Offer in Compromise in Minnesota
Minnesota taxpayers who wish to negotiate their Offer in Compromise denial, may informally contact the IRS administrator who reviewed the first OIC offer. The Internal Revenue Service will on many occasions be willing to work with the taxpayer to negotiate a settlement offer which is agreeable to the government and the taxpayer. If the informal OIC appeals process does not provide an acceptable offer, Minnesota taxpayers may choose to file a more formal Offer in Compromise appeal. All OIC appeals must be made in writing to the Internal Revenue Service with in 30 days from the date of the OIC denial letter.
Completing an Offer in Compromise
Minnesota residents who hope to complete an Offer in Compromise must do the following:
- Submit a series of OIC forms and documents to the Internal Revenue Service. Financial documentation may include: pay stubs, bank records, and vehicle information.
- Minnesota taxpayers will have to file all Internal Revenue Service tax returns on or before the federal tax deadline for the next 5 years
- All self-employed Minnesota workers will have to file estimated tax returns and make estimated tax payments each quarter
- Minnesota taxpayers must pay all Internal Revenue Service tax payments (excluding the amount outlined in the OIC) for the next 5 years
- Minnesota taxpayers must agree to pay the amount outlined in the Offer in Compromise
- Minnesota taxpayers must agree to let the Internal Revenue Service keep all IRS tax refunds and apply them toward their federal tax debt prior to submitting their Offer in Compromise
- Minnesota taxpayers must agree that the Internal Revenue Service can apply any tax refund to IRS back taxes for the calendar year that the Offer in Compromise is approved
Minnesota taxpayers who do not meet all of the terms in the OIC contract may have their contract revoked. The IRS also may decide to charge the taxpayer for the full amount of the federal tax debt owed.
Offer in Compromise Forms
- IRS Form 656- Offer in Compromise. IRS Form 656 provides financial information about the Minnesota taxpayer’s finances and will help the IRS determine if the taxpayer is able to repay their federal tax debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. Form 443-A provides additional financial information about the Minnesota taxpayer’s ability to meet their tax debt obligations to the Internal Revenue Service.
- IRS Form 443-B- Collection Information Statement for Businesses. Form 433-B will give the IRS more financial information about the Minnesota taxpayer’s business. Minnesota residents are only required to complete and send this tax form to the IRS if they are including their business tax debt in their Offer in Compromise.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. This form is required for any Minnesota taxpayer who is requesting the Offer in Compromise fee waiver.
Minnesota Tax Professionals
Minnesota taxpayers have a wide variety of options available to settle back taxes. Not all tax settlement options will be appropriate for all Minnesota taxpayers. Contact a tax professional such as a certified tax accountant, enrolled tax agent or tax attorney to identify what plan may be best.