Nevada taxpayers can settle IRS tax debt with Offer in Compromise, a program established by the Internal Revenue Service (IRS). Offer in Compromise allows Nevada taxpayers to make an offer to settle their tax debt. The IRS may either accept or reject the offer. If the IRS accepts the offer, all the debt outlined in the Offer in Compromise is considered settled. Offer in Compromise allows the IRS to avoid declaring debt as currently not collectible or accepting a protracted installment agreement. OIC will allow the IRS to accept an amount to settle tax debt which is generally much less than the full amount owed and hopefully put the taxpayer in a financial position to meet all future tax liabilities.
The IRS has sole discretion to accept or reject all Offer in Compromise offers. They will only accept an OIC if they believe they will not be able to collect the debt from the Nevada taxpayer, paying the debt will cause substantial financial hardship to the taxpayer or if there is question about accuracy of the amount owed. Currently the IRS accepts approximately 25% of the OIC offers. More are accepted after negotiations or an appeal. If the IRS declines the OIC offer, they will be able to use the detailed financial information they have gathered to proceed with debt collection against the Nevada taxpayer. Penalties and interest will continue to accumulate while the IRS reviews the Offer in Compromise agreement.
Offer in Compromise can be complicated and expensive. All Nevada taxpayers who are considering an Offer in Compromise should contact a tax professional such as an enrolled agent, certified public accountant or tax attorney for more information. The IRS offers many options to settle taxes and OIC may not be the best option for all Nevada taxpayers.
Qualifying for Offer in Compromise in Nevada
All Nevada taxpayers must meet one of the following criteria to qualify for an OIC:
Doubt as to Liability – The taxpayer may qualify for an OIC if they can prove there was an error in calculation of the debt, an error in interpretation of the tax law, or new information has surfaced which can prove the tax liability was assessed incorrectly. This qualification is not frequently met.
Doubt as to Collectibility – This qualification differs from the first. The amount of debt calculated and owed is not in question, just the ability of the Internal Revenue Service to collect the debt.
Effective Tax Administration- Nevada taxpayers who can prove that paying their tax debt will cause an economic hardship which would be inequitable or unfair may qualify for an OIC. This condition is most frequently accepted for the elderly and handicapped.
Rejection of Offer in Compromise in Nevada
The Internal Revenue Service denies approximately 25% of all OIC offers at the application level. More are accepted after negotiations or appeals. If the IRS denies a Nevada taxpayer’s OIC offer, they are required to send a written letter detailing the reasons the offer was not accepted. The IRS should be able to provide to the taxpayer a compromise settlement amount which they consider reasonable. Nevada taxpayers must resubmit the Offer in Compromise forms if their financial information has substantially changed or if the appeal’s deadline has passed. If the IRS refuses to provide the OIC information to the Nevada taxpayer, the Nevada taxpayer can request the information under the Freedom of Information Act.
Appealing an Offer in Compromise in Nevada
Nevada taxpayers can make an informal appeal to the IRS administrator who made the first OIC denial decision to reconsider or renegotiate an offer. If informal negotiations fail, Nevada taxpayers can make a formal appeal by writing a letter to the IRS within 30 days from the date of the Offer in Compromise denial letter. It is not unusual for the IRS to willingly negotiate to find a tax settlement amount which is agreeable to both the IRS and the Nevada taxpayer.
Completing an Offer in Compromise
Nevada taxpayers must complete the following tasks to qualify for an Offer in Compromise:
- All OIC forms must be submitted in a timely fashion as requested by the IRS. Documents and financial forms may include: Nevada taxpayer’s pay stubs, bank records, and vehicle information.
- All federal tax returns must be filed by the Nevada taxpayer on or before the federal tax deadline for the next five years.
- All self-employed Nevada taxpayers must make estimated federal tax payments and file all IRS tax returns each quarter.
- Nevada taxpayers must pay all of their federal tax payments (excluding the amount outlined in the OIC offer) for the next five years.
- Nevada taxpayers must pay the amount outlined in the Offer in Compromise agreement.
- The Internal Revenue Service will keep all IRS tax refunds and apply them to the tax debt prior to submitting the OIC.
- Any tax refund which would be made to the Nevada taxpayer for IRS back taxes for the calendar year that the OIC is approved will be paid toward the outstanding tax debt.
The IRS has full legal ability to cancel or revoke the OIC agreement if a Nevada taxpayer fails to meet all of the requirements of the agreement. The IRS can also reinstate the full amount of tax owed.
Offer in Compromise Forms
- IRS Form 656- Offer in Compromise. IRS Form 656 provides financial information to the Internal Revenue Service about the Nevada taxpayer, their financial status and their ability to pay their tax debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. Form 443-A provides additional information about the Nevada taxpayer’s ability to pay their tax debt to the IRS.
- IRS Form 443-B- Collection Information Statement for Businesses. Form 433-B provides information to the IRS about the Nevada resident’s business. Form 443-B will only need to be included with the OIC offer if Nevada taxpayer is including their business tax debt in the offer.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. Form 656-A will only have to be submitted to the IRS if the Nevada taxpayer is requesting the Offer in Compromise fee waiver.