Utah taxpayers who have outstanding IRS tax debt may have several available IRS tax settlement options they can use to settle their debt. Offer in Compromise or OIC is one of the most popular options and may allow the taxpayer to make a tax settlement offer to the IRS to settle federal tax debt for a fraction of the full amount of taxes owed. The IRS does not accept all OIC offers, but if they do accept the offer, all tax debt outlined in the OIC will be considered settled.
The IRS will only accept an OIC if a Utah taxpayer can not pay a one lump sum payment or if the taxpayer can not qualify for an installment agreement. If the IRS denies the Offer in Compromise they may be willing to negotiate with the taxpayer or review the OIC denial through a formal OIC appeal. The IRS has the authority not only to collect federal taxes to but to determine what tax amount will settle the tax debt. The Utah taxpayer will not be able to sue or file a lawsuit against the IRS.
Utah taxpayers who do not pay their outstanding tax debt may become the target of IRS collectors and may face wage garnishments, repossessions, bank account levies or imprisonment. It is not a good idea to ignore the IRS. All Utah taxpayers who have IRS back tax debt and need more information about Offer in Compromise or other IRS tax settlement options should contact a tax professional for more information. Offer in Compromise can cost a lot of money to implement, require the taxpayer to send detailed information to the IRS and can be time consuming. Offer in Compromise may not always be the best solution for all Utah taxpayers.
Three types of Offer in Compromises:
The IRS does not accept all Offer in Compromise applications. Utah taxpayers must meet certain criteria to qualify for an OIC:
1. Doubt as to Liability – If the amount of IRS tax debt is in question the IRS may be willing to accept an Offer in Compromise. Errors can occur if the IRS made a calculation error, misapplied the federal tax laws or did not consider all of the taxpayer’s financial information. Errors in the tax amount are not common.
2. Doubt as to Collectability – If the tax amount can not be collected either now or in the future the IRS may be willing to accept an Offer in Compromise. Under this condition the amount of debt is not in question. The Internal Revenue Service also may accept an OIC if they think it will cost them too much to collect the tax debt.
3. Effective Tax Administration- If a taxpayer can not pay their tax debt with out experiencing an economic hardship which is unfair or inequitable the IRS may accept an Offer in Compromise. The elderly and handicapped most frequently use this condition.
Rejection of Offer in Compromise in Utah
The IRS has the authority to make the final decision on all Offer and Compromise agreements. Utah taxpayers may be able to appeal the decision, but if the IRS is not willing to accept the appeal, the Utah taxpayer can not file suit against the IRS in court.
If an Offer in Compromise is denied the IRS is required to send the Utah taxpayer an OIC denial letter detailing the reason the request was denied. Most OIC requests are denied because the IRS believes the OIC offer was too low. The IRS may be willing to negotiate with the Utah taxpayer to find an OIC offer which both parties find agreeable. If the Internal Revenue Service refuses to provide the Offer in Compromise documentation to the taxpayer, this information can be requested under the Freedom of Information Act.
Appealing an Offer in Compromise in Utah
Negotiations for OIC denials frequently begin by contacting the IRS administrator who reviewed the initial OIC offer. If the administrator is unwilling or unable to negotiate a new offer, the Utah taxpayer can make a formal appeal by sending a written letter to the IRS within 30 days from the date of the OIC denial letter. Utah taxpayers must include the following details in their OIC appeal’s letter:
- Utah taxpayer’s social security number, full name, address and telephone number
- The Utah taxpayer must make a statement detailing the reasons they are appealing the OIC denial.
- The Utah taxpayer should include a copy of the letter sent by the IRS and provide a list of the proposed changes or items that the taxpayer wants updated and the reasons why.
- The taxpayer must document the tax periods or years in question.
- The taxpayer should include any federal tax laws or other details which may support their position.
- The letter must be signed by the Utah taxpayer under penalty of perjury.
All negotiations and Offer in Compromise appeals can be done without the help of a tax professional, but it may be a good idea to contact someone who has experience negotiating settlements. Utah taxpayers who seek outside legal counsel should contact a tax professional who is a certified public accountant, an enrolled tax agent or a tax attorney.
Completing an Offer in Compromise
Utah taxpayers must also complete the following Offer in Compromise tasks:
- All OIC paperwork must be completed and sent to the IRS by the Utah taxpayer.
- Personal financial information must be sent to the IRS when it is requested. The IRS may request information about the taxpayer’s employment, bank records or vehicle information.
- Federal tax forms must be sent to the IRS on or before the tax deadline each year.
- Utah workers who are self-employed must make estimated tax payments to the IRS each quarter.
- All federal taxes must be paid by Utah taxpayers for the next five years.
- All OIC payments must be made per the Offer in Compromise agreement.
- The Internal Revenue Service will apply all tax refunds to the Utah taxpayer’s IRS debt for the calendar year that the OIC is accepted.
Failure to comply with the Offer in Compromise requirements may cause the IRS to terminate the Offer in Compromise agreement. If the IRS terminates the OIC agreement the full amount of IRS tax debt may be reinstated.
Offer in Compromise Forms
- IRS Form 656- Offer in Compromise. Utah taxpayers must submit IRS Form 656 to the IRS so the IRS can identify the taxpayer’s ability to pay their tax debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. Utah taxpayers must send IRS Form 443 A to the IRS to provide additional information on their ability to repay their tax debt.
- IRS Form 443-B- Collection Information Statement for Businesses. Utah taxpayers must send IRS Form 433-B to the IRS if their business tax debt is included in their Offer in Compromise.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. Utah taxpayers must submit IRS Form 565-A only if they are requesting an OIC fee waiver.