Indiana taxpayers who owe the IRS back taxes may be able to use one of their IRS tax settlement options to settle their debt. One of the most popular of these programs is Offer in Compromise or OIC. Offer in Compromise can be complicated and time consuming, but in many cases the IRS may be willing to accept much less than the total amount of taxes owed to settle tax debt.
Offer in Compromise allows the Indiana taxpayer to make an offer to the IRS. If the IRS accepts the offered amount, the debt outlined in the OIC will be settled. Penalties and interest will continue to accrue while the IRS is considering the OIC. The IRS frequently will consider an Offer in Compromise to help taxpayers improve their chances of meeting future tax debt and eliminate the need to accept an installment agreement or declare taxes as not collectible.
Most Offer in Compromise offers are not accepted. More may be accepted after negotiations or on appeal. The IRS will only accept an offer if there is doubt as to the amount of debt assessed, doubt as to the ability of the IRS to collect the tax debt, or payment of the debt will cause the taxpayer hardship which is unfair or inequitable. If the IRS denies the Offer in Compromise offer, they can use the information they have collected to collect an Indiana taxpayer’s past tax debt.
Offer in Compromise is one of several IRS tax settlement options available to Indiana taxpayers. Tax professionals such as an enrolled agent, tax attorney or certified public accountant can provide information and details about IRS tax settlement plans.
Qualifying for Offer in Compromise in Indiana
Not all Indiana taxpayers who request an Offer in Compromise will be eligible to receive one. To qualify for an OIC taxpayers must meet one of the following conditions:
Doubt as to Liability – Indiana taxpayers who can prove the amount of taxes they have been charged is incorrect may qualify for an OIC. Errors in debt calculation can occur from an IRS miscalculation or new financial information from the taxpayer. This qualification is seldom met.
Doubt as to Collectibility – The amount of tax debt is not in doubt, only the ability of the IRS to collect the debt now or in the future. The IRS may also accept an OIC under this condition if they believe the cost to collect the debt is too high.
Effective Tax Administration- Indiana taxpayers, under certain conditions, may experience an inequitable or unfair hardship if they pay their tax debt. If the IRS agrees they may qualify for an OIC. The elderly, individuals with physical or mental disabilities or individuals who have expensive medical bills most frequently meet this condition.
Rejection of Offer in Compromise in Indiana
Offer in Compromises may be rejected up to 80% of the time by the IRS. The IRS allows negotiations and appeals, but the federal government has given them sole authority to determine if an OIC offer will be accepted. If the IRS denies an OIC, the taxpayer will not have legal recourse.
The IRS must send a written letter to the Indiana taxpayer outlining why the OIC offer was declined. The IRS most frequently denies OIC offers because they believe the offer is too low. The IRS should be able to provide an amount to the Indiana taxpayer which the IRS would be willing to accept.
All OIC appeals must be made to the Internal Revenue Service within 30 days from the date of the Offer in Compromise denial letter. Indiana taxpayers must submit new OIC forms if the OIC deadline has expired or if the taxpayer’s financial information has substantially changed. If the IRS refuses to provide information to the taxpayer, information can be requested under the Freedom of Information Act.
Appealing an Offer in Compromise in Indiana
Negotiations for an Offer in Compromise can usually be made by contacting the IRS administrator who denied the first OIC offer. Formal appeals can also be made by Indiana taxpayers by sending a written letter to the IRS within 30 days from the date of the OIC denial.
Completing an Offer in Compromise
Indiana taxpayers must complete the following tasks for an Offer in Compromise:
- Offer in Compromise forms must be completed and submitted to the IRS.
- Financial information which is requested by the IRS must be submitted in a timely fashion. Financial information may include: Indiana taxpayer’s pay stubs, banking records, and vehicle information.
- Indiana taxpayers must file all federal tax returns on or before the tax deadline for the next five years.
- All self-employed Indiana taxpayers must pay their estimated federal tax payments and file their tax returns every quarter.
- All federal tax payments (except the amount outlined in the Offer in Compromise) must be paid for the next five years.
- Indiana taxpayers must pay the amount outlined in the Offer in Compromise.
- All refunds will be applied to the Indiana taxpayer’s tax debt before the Offer in Compromise offer is accepted.
- The IRS will apply any refund to the Indiana taxpayer’s tax debt for the calendar year that the Offer in Compromise is approved.
If the Indiana taxpayer does not meet all of the requirements in their Offer in Compromise, the IRS has the legal authority to terminate the Offer in Compromise and charge the Indiana taxpayer the total amount of tax debt.
Offer in Compromise Forms
- IRS Form 656- Offer in Compromise. Indiana taxpayers must complete and submit IRS Form 656 to the Internal Revenue Service to provide information about their ability to repay their federal tax debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. Form 443-A provides financial information to the IRS about the status of the Indiana taxpayer.
- IRS Form 443-B- Collection Information Statement for Businesses. Form 433-B provides information to the IRS about the Indiana’s taxpayers business. This form must be submitted if the business tax debt is part of the OIC.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. Indiana taxpayers must submit this form if they are requesting an OIC fee waiver.