The IRS offers a variety of tax settlement options for Idaho taxpayers who are unable to pay IRS tax debt and Offer in Compromise is one of the most popular options. Offer in Compromise or OIC allows an Idaho taxpayer to make an offer to the IRS to settle past IRS debt. If the IRS considers the offer reasonable, they will accept the offer and the past tax debt will be considered settled. The IRS has the incentive to accept Offer in Compromise offers because it will eliminate the need for a protracted installment agreement, can help them avoid declaring debt as currently not collectible and help taxpayers pay their future tax liability.
The IRS does not accept all Offer in Compromises. The IRS will only accept an offer if they believe the debt is not collectible, the debt may cause a taxpayer unreasonable hardship or the amount of debt is potentially miscalculated.
The Internal Revenue Service is the government entity tasked with tax collection. The IRS is authorized to collect the tax dept by the federal government. Idaho taxpayers who fail to pay their tax debt can face aggressive debt collection tactics by the IRS including: wage garnishment, repossessions, and bank account levies. Offer in Compromise may be one method taxpayers have to avoid debt collection actions.
Offer in Compromise can be expensive and time consuming. The IRS will need large amounts of detailed financial data from the taxpayer to process the OIC. Penalties and interest will continue to accrue while the OIC offer is under consideration. A tax professional should be contacted by the Idaho taxpayer if they are considering an Offer in Compromise.
Qualifying for Offer in Compromise in Idaho
Approximately 25% of initial OIC offers are accepted. Not all Idaho taxpayers who want an OIC will qualify. To qualify for an OIC the Idaho taxpayer must meet one of the following conditions:
Doubt as to Liability – The IRS must believe there could be a miscalculation in the amount of debt the taxpayer owes. This can occur if the IRS made a mistake in assessing the tax liability or the taxpayer has more financial documentation that can clarify the amount of debt owed. The IRS does not use this condition very often.
Doubt as to Collectibility – The IRS believes they will not be able to collect the tax debt either now or in the future. Under this condition the amount of tax debt owed is not in question, only the ability of the IRS to collect the debt.
Effective Tax Administration– If payment of the tax debt may cause “an inequitable or unfair hardship for the taxpayer” the Internal Revenue Service may be willing to accept an Offer in Compromise (most frequently used by the elderly and the disabled).
Rejection of Offer in Compromise in Idaho
Most Offer in Compromises are denied. The IRS has been granted the authority to deny or accept offers by the federal government and the Idaho taxpayer does not have legal recourse against the IRS. The IRS however, does frequently negotiate to give the taxpayer the ability to meet future tax obligations.
If the IRS denies the OIC, they must send written notification to the Idaho taxpayer outlining the reason for the rejection. If the IRS denied the Offer in Compromise because the offer was too low they should be able to provide a counter offer to the taxpayer which they would consider reasonable. If the IRS refuses to provide information the Idaho taxpayer has the legal authority to request it under the Freedom of Information Act.
Appealing an Offer in Compromise in Idaho
Negotiations for the Offer in Compromise can often start by contacting the IRS administrator who made the first OIC decision. If that does not work, a more formal appeal can be made by sending written notice to the IRS within 30 days from the date of the OIC denial.
Idaho taxpayers will need to resubmit their OIC forms only if the OIC deadline has expired or if their financial situation has dramatically changed.
Completing an Offer in Compromise
Idaho taxpayers will also need to complete the following tasks for an Offer in Compromise:
- All Offer in Compromise forms must be completed and sent to the IRS.
- Idaho taxpayers must submit their financial data to the IRS in a timely fashion. Financial information may include: Idaho taxpayer’s pay stubs, banking and car information.
- Idaho taxpayers must complete and file tax returns on or before the tax deadline for the next five years.
- All self-employed Idaho taxpayers must pay their tax estimates and file their tax returns every quarter.
- All tax payments (except the amount outlined in the OIC) must be paid by Idaho taxpayers for the next five years.
- Idaho taxpayers must pay the amount outlined in the Offer in Compromise.
- All refunds will be applied to the Idaho taxpayer’s tax debt before the Offer in Compromise is accepted.
- The Internal Revenue Service will apply any federal refund to the Idaho taxpayer’s tax debt for the calendar year that the Offer in Compromise is approved.
The IRS can reinstate the full tax amount and cancel the Offer in Compromise if taxpayers fail to follow all the OIC requirements.
Offer in Compromise Forms
- IRS Form 656- Offer in Compromise. IRS Form 656 provides financial information to the Internal Revenue Service detailing the taxpayer’s 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 to the Internal Revenue Service about the ability of the Idaho taxpayer to pay their debt.
- IRS Form 443-B- Collection Information Statement for Businesses. Form 433-B provides information to the IRS about the Idaho taxpayer’s business. This form will only need to be submitted if the business tax debt is included in the OIC agreement.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. This form must be submitted if the Idaho taxpayer is requesting an Offer in Compromise fee waiver.