New York taxpayers who have unpaid federal tax liability can settle their IRS tax debt by negotiating a debt payment plan called Offer in Compromise (OIC) with the Internal Revenue Service. Offer in Compromise allows taxpayers to settle their debt for a fraction of the full payment amount. The Internal Revenue Service will negotiate with taxpayers hoping that accepting the Offer in Compromise will allow taxpayers to meet their future tax liability.
The Internal Revenue Service does not have to accept any Offer in Compromise offers. Currently the rate of acceptance at the initial OIC application level is 20-25%. New York taxpayers do not have legal recourse against the IRS and can not sue them if their Offer in Compromise is denied.
Interest and penalties will continue to accrue while the Offer in Compromise is being considered and the Internal Revenue Service will have detailed information about taxpayers financial data which they can use to continue debt collection if the Offer in Compromise is denied. New York taxpayers who are considering an Offer in Compromise should consult a tax professional such as an enrolled tax agent, tax accountant or tax attorney prior to making an Offer in Compromise to the Internal Revenue Service.
Qualifying for Offer in Compromise in New York
Not all Offer in Compromises will be accepted. The Internal Revenue Service will only consider an OIC if it meets one of the following criteria:
- Doubt as to Liability– New York taxpayers may qualify for an OIC if there is doubt to the amount of liability owed. This condition is not commonly met.
- Doubt as to Collectibility- New York taxpayers may qualify for an Offer in Compromise if the Internal Revenue Service doubts they will be able to collect the IRS tax debt. Under this condition, there is not doubt as to the liability only the ability to collect the debt.
- Effective Tax Administration– Under certain conditions the Internal Revenue Service will accept an Offer in Compromise offer for New York taxpayers if the Internal Revenue Service believes back tax debt collection will cause “an economic hardship which is inequitable and unfair”. This qualification is most frequently used for the elderly and the handicapped.
Rejection of Offer in Compromise in New York
Over 80% of the Offer in Compromise applications will not be accepted at the initial OIC application level. The Internal Revenue Service must send written notification to New York taxpayers explaining in written detail why their Offer in Compromise is not accepted and what amount the Internal Revenue Service would consider reasonable. The most frequent reason given for not accepting an Offer in Compromise offer is the offer is not high enough. New York taxpayers can request written information which is not provided by utilizing the Freedom of Information Act.
New York taxpayers who are considering an Offer In Compromise should contact a tax professional who can help with the initial Offer in Compromise offer and help complete the OIC appeal if necessary. Offer in Compromise Form 656 will only need to be filed a second time if the New York taxpayer’s financial data has dramatically changed or if the New York taxpayer has missed the OIC appeal deadline.
The Internal Revenue Service does not have to agree to negotiate or accept an Offer in Compromise appeal, but they frequently are willing to work with the New York taxpayer to settle IRS back tax debt.
Appealing an Offer in Compromise in New York
Negotiations to appeal an Offer in Compromise can be done with the administrator who initially reviewed the Offer in Compromise. If administrative negotiations fail, New York taxpayers can use the more formal OIC appeal process. New York taxpayers can appeal the Offer in Compromise by sending written notification to the Internal Revenue Service with in thirty days of receiving the Offer in Compromise denial letter.
Steps to file an Offer in Compromise
If a New York Taxpayer is considering Offer in Compromise to settle IRS tax debt the following tasks must be completed:
- New York taxpayers will need to provide detailed financial information to the Internal Revenue Service.
- All federal tax returns which have not been filed must be filed with the Internal Revenue Service.
- Self-employed taxpayers must file tax payments and tax estimates quarterly.
- All federal tax liability must be paid for the time frames not covered by the Offer in Compromise.
New York taxpayers must fill out the following forms for the Offer in Compromise offer:
- IRS Form 656- Offer in Compromise. New York taxpayers must fill out Form 656 to provide the Internal Revenue Service with information about their financial status and their ability to pay their federal tax liability.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed. This OIC form provides additional information about the New York taxpayers ability to pay their federal tax debt.
- IRS Form 443-B- Collection Information Statement for Businesses. This OIC form is similar to the Internal Revenue Service Form 433-A and will need to be completed if the taxpayer’s business is included in the Offer Compromise offer.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. New York taxpayers will need to complete this form if they are requesting the Offer in Compromise fee be waived.
New York Tax Professionals
New York residents who are considering an Offer in Compromise may want to consult with a tax professional with experience and knowledge about the federal tax code to help them make a good offer. Offer in Compromise is only one method used to repay federal tax debt and it may not be the best option for all New York taxpayers.