The Internal Revenue Service (IRS) offers a variety of tax settlement options for Maryland taxpayers who would like to settle their IRS tax debt. Offer in Compromise is one these options and may allow Maryland taxpayers to settle their debt for a fraction of the total amount owed.
Offer in Compromise or OIC allows Maryland taxpayers to make an “offer” to the IRS and if the IRS decides to take the offer, it will be considered a compromise settlement for outstanding tax debt. One of the main reasons the IRS may be willing to accept an OIC is it may eliminate the need for the IRS to accept an extended settlement agreement.
The IRS currently accepts approximate 25% of all OIC offers but will only do so if they believe the taxpayer would suffer an unreasonable hardship if the tax was paid, the amount of tax debt may not be accurate or the IRS may not be able to collect the tax debt.
The IRS has been given the authority to collect taxes by the federal government and if Maryland taxpayers fail to pay their tax debt the IRS is authorized to use a variety of aggressive collection methods to collect the debt including: wage garnishments, property repossessions or bank levies.
Maryland taxpayers who have excessive tax debt and are considering Offer in Compromise may want to contact a tax professional for more information. OIC can be time consuming and expensive. Offer in Compromise is only one of several available tax settlement options and it may not be the best one for all Maryland taxpayers.
Qualifying for Offer in Compromise in Maryland
Maryland taxpayers who want an Offer in Compromise must meet one of the following requirements:
Doubt as to Liability – Maryland taxpayers may qualify for an Offer in Compromise if there is some doubt as to the accuracy of the amount of tax debt which has been assessed. This requirement is seldom met.
Doubt as to Collectibility – Maryland taxpayers may qualify for an Offer in Compromise if the IRS determines it is unlikely the tax debt will every be collected either now or in the future. The IRS may also decide to grant an OIC if they determine trying to collect the tax debt is too expensive.
Effective Tax Administration- Maryland taxpayers who may suffer “an inequitable or unfair hardship” by paying outstanding IRS tax debt may qualify for an Offer in Compromise. This option is most frequently used by the elderly and the disabled.
Rejection of Offer in Compromise in Maryland
The Internal Revenue Service will deny most Offer in Compromise offers. The IRS has the authority to accept an offer and if they choose to deny the OIC, Maryland taxpayers will not have the legal authority to sue the IRS.
All denial letters must include a reason for the denial and if the offer was considered too low, the IRS may be willing to make a counter offer to help the government and the Maryland taxpayer find to an OIC offer which is agreeable to both parties. If the IRS refuses to provide Offer in Compromise information to the taxpayer, it can be requested under the Freedom of Information Act.
Appealing an Offer in Compromise in Maryland
The first step in OIC negotiations is to contact the IRS administrator who made the first Offer in Compromise denial decision. More formal OIC appeals can be made by sending an appeal letter to the Internal Revenue Service within 30 days from the date of the denial letter.
Maryland taxpayers must submit new Offer in Compromise forms if the Offer in Compromise appeal deadline has past or if their financial status has substantially changed.
Completing an Offer in Compromise
All of the following tasks must be completed by Maryland taxpayers for an Offer in Compromise:
- Maryland taxpayers must complete all Offer in Compromise forms and send them to the IRS.
- Maryland taxpayers must send their financial data to the Internal Revenue Service in a timely fashion. Financial information includes: Maryland taxpayer’s pay stubs, banking and vehicle information.
- Maryland taxpayers must complete and send all federal tax returns to the IRS on or before the tax deadline for the next 5 years.
- All self-employed Maryland taxpayers must pay their estimated federal taxes and file their tax returns every quarter.
- All tax payments (except the amount outlined in the Offer in Compromise) must be paid by Maryland taxpayers for the next 5 years.
- Maryland taxpayers must pay the amount outlined in the OIC.
- All refunds will be applied to the Maryland taxpayer’s federal tax debt before the Offer in Compromise is accepted.
- The IRS will apply any IRS tax refund to the Maryland taxpayer’s tax debt for the calendar year that the Offer in Compromise is approved.
Maryland taxpayers who do not complete the previous actions may have their Offer in Compromise terminated and the IRS may reinstate the full amount of their IRS tax.
Offer in Compromise Forms
- IRS Form 656- Offer in Compromise. Maryland taxpayers must submit IRS Form 656 to the IRS to provide detailed financial information about 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 IRS about the ability of the Maryland taxpayer to pay their federal tax debt.
- IRS Form 443-B- Collection Information Statement for Businesses. Form 433-B provides information to the Internal Revenue Service about the Maryland taxpayer’s business. This form will only need to be sent to the IRS if the business tax debt is included in the Offer in Compromise agreement.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. Maryland taxpayers who are requesting an Offer in Compromise fee waiver must submit this form.