Offer in Compromise (OIC) may allow Wisconsin taxpayers to pay the Internal Revenue Service (IRS) less than the full amount of IRS tax debt owed. The IRS has sole authority not only to collect federal taxes but to decide how much money they are willing to accept to settle tax debt. The IRS may accept an Offer in Compromise if the taxpayer meets certain conditions and if the IRS is convinced the tax can not be paid with an installment agreement or with a lump sum payment. The goal of the IRS is always to ensure the taxpayer pays as much tax possible, for the lease cost to the government and in the shortest time frame possible.
The IRS currently accepts 20-25% of all initial Offer in Compromise offers. If the OIC is denied, the Wisconsin taxpayer may be able to appeal, but if negotiations or appeals are refused, the taxpayer will not have any legal recourse against the IRS to compel them to accept an Offer in Compromise.
Offer in Compromise can be time consuming, expensive and difficult to implement. For the OIC review process the IRS collects detailed financial data, and if the OIC is denied this data can be used to continue aggressive tax collection efforts.
Offer in Compromise may be a good way for some Wisconsin taxpayers to settle their tax debt for a fraction of the full amount of tax owed, but it is just one of several IRS tax settlement options available. It may not always be the best option. Wisconsin taxpayers who need more information about Offer in Compromise should contact a tax professional.
Qualifying for Offer in Compromise in Wisconsin
The IRS does not accept all Offer in Compromise offers. OIC offers are only accepted if the taxpayer’s debt meets one of the following conditions:
Doubt as to Collectibility – If the IRS doubts their ability to collect tax debt before the statutory period ends, or if they determine that the cost to collect the IRS tax debt is too high, the IRS may accept an Offer in Compromise.
Doubt as to Liability– This condition is not used often, but if the IRS determines a taxpayer’s debt is incorrect they may accept an Offer in Compromise. Errors could occur from a miscalculation, misinterpretation of tax law or if additional tax data is offered by the taxpayer.
Effective Tax Administration- Wisconsin taxpayers who may face an economic hardship which would be inequitable or unfair if they paid their federal tax debt may qualify for an Offer in Compromise. This condition is most frequently used for the elderly and handicapped.
Rejection of Offer in Compromise in Wisconsin
If the Offer in Compromise is rejected, the IRS is required to send a letter to the Wisconsin taxpayer listing the reasons for the OIC denial. Most Offer in Compromise offers are denied because the IRS considers the offer too low. If this is the case, the IRS should be able to provide a counter offer to the Wisconsin taxpayer. All Offer in Compromise information which is not provided to the taxpayer can be legally collected and reviewed under the Freedom of Information Act.
Appealing an Offer in Compromise in Wisconsin
If the Offer in Compromise is denied, the taxpayer can begin the appeal’s process informally by contacting the IRS administrator who reviewed their first Offer in Compromise offer. The IRS may or may not be willing to negotiate until a settlement, which is agreeable to both the federal government and the Wisconsin taxpayer, is found.
If the Internal Revenue Service refuses to negotiate informally, the Wisconsin taxpayer can file a formal appeal by sending a written letter to the IRS within 30 days from the date of the Offer in Compromise denial letter.
Wisconsin taxpayers who have been denied an Offer in Compromise can hire a tax professional to help with all negotiations and OIC appeals. Tax professionals who can help include: tax attorneys, certified public accountants and enrolled agents. The Offer in Compromise letter should include the following information:
- Wisconsin taxpayer’s full name, address, social security number and telephone number.
- A statement from the Wisconsin taxpayer outlining the reasons they are appealing the Offer in Compromise denial.
- All proposed changes that the Wisconsin taxpayer wants updated.
- A list of the tax periods or years in question.
- A list of the federal tax laws which support the Wisconsin taxpayer’s position.
- The Wisconsin taxpayer must sign the Offer in Compromise appeal letter under penalty of perjury.
Completing an Offer in Compromise
To file an Offer in Compromise the Wisconsin taxpayer must complete the following tasks:
- Submit all of the required financial documents and OIC forms to the IRS. Documentation can include: payroll stubs, bank records, and vehicle information.
- Wisconsin taxpayers must file all IRS tax returns on or before the federal tax deadline for the next 5 years.
- All Wisconsin workers who are self-employed must make estimated tax payments and file all IRS tax returns each quarter.
- Wisconsin taxpayers must pay all IRS tax payments (excluding the amount outlined in the Offer in Compromise offer) for the next 5 years.
- Wisconsin taxpayers must pay all of the taxes outlined in the Offer in Compromise.
- Wisconsin taxpayers must agree to have all IRS refund payments applied to their tax debt for the calendar year that the Offer in Compromise is approved.
The IRS has the authority to cancel an Offer in Compromise agreement if the Wisconsin taxpayer fails to meet the Offer in Compromise requirements. If the OIC is cancelled, the full amount of IRS tax debt may be reinstated.
Offer in Compromise Forms
- IRS Form 656- Offer in Compromise. IRS Form 656 provides financial information about the Wisconsin taxpayer’s financial status and their ability to pay their federal taxes.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. Form 443-A provides additional financial information about the Wisconsin taxpayer’s ability to pay their federal tax debt to the IRS.
- IRS Form 443-B- Collection Information Statement for Businesses. Form 433-B outlines financial information about the Wisconsin taxpayer’s business and only needs to be submitted by the Wisconsin taxpayer if their business debt is part of their Offer in Compromise.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. IRS Form 656-A only needs to be completed and submitted if the Wisconsin taxpayer is requesting an Offer in Compromise fee waiver.