Offer in Compromise or OIC is one of the most popular IRS tax settlement options available to taxpayers. Offer in Compromise allows the Rhode Island taxpayer to make an offer to the IRS to settle their IRS tax debt. Frequently the offer is for far less than the full amount of tax debt owed. If the IRS accepts the offer, it is considered a “compromise” and all of the IRS tax debt outlined in the offer will be considered settled.
The IRS denies approximately 80% of first time Offer in Compromise offers, but more may be accepted after a series of negotiations or after a formal appeal. The IRS only accepts OIC offers if the taxpayer meets certain conditions and the IRS does not think they can repay their IRS debt with an installment agreement or with a lump sum payment.
The IRS has been given authority by the federal government to collect taxes which fund the United States federal government. Failure to pay IRS tax debt can result in bank account levies, wage garnishments and property repossession. Rhode Island taxpayers who are the target of the IRS collection actions can contact a tax professional who can provide information about IRS tax settlement options which are currently available to them.
Three types of Offer in Compromises:
There may be many Rhode Island taxpayers who desire an OIC agreement who will not qualify for one. To accept the taxpayer’s OIC offer, the IRS must determine that the taxpayer’s debt meets one of the following conditions:
1. Doubt as to Liability – An OIC offer may be accepted if there is some doubt as to the accuracy of the tax debt which has been assessed. Errors can occur through miscalculations, tax law misinterpretation, or failure to consider all of the taxpayer’s financial information. This condition is not frequently met.
2. Doubt as to Collectibility – Under this condition the amount of tax debt is not in question, only the ability of the IRS to collect the tax debt. An OIC may also be accepted if the IRS has determined collection of the tax is too high.
3. Effective Tax Administration- If the IRS determines the Rhode Island taxpayer may suffer a hardship which is inequitable or unfair if they pay their outstanding tax debt, the IRS may accept an OIC offer. This condition is used mainly for the elderly or the handicapped.
Rejection of Offer in Compromise in Rhode Island
The IRS not only has authority to collect federal tax debt, but they may also decide how much they are willing to accept to settle outstanding IRS tax debt. The IRS has the ability to accept or deny all OIC offers and the Rhode Island taxpayer will not have any legal authority to compel the IRS to accept an offer through lawsuits or any other legal means.
If the Internal Revenue Service denies an Offer in Compromise, they are required to send a written notice to the Rhode Island taxpayer outlining the reasons for the OIC denial. Most OIC offers are denied because the IRS has determined the offer is too low. If this is the reason, the IRS should be able to provide a counter offer to the taxpayer which the government thinks is reasonable. All information which is not provided by the IRS to the taxpayer may be requested under the Freedom of Information Act.
Appealing an Offer in Compromise in Rhode Island
The first step in the negotiation process if the OIC is denied is to contact the IRS and try to speak with the IRS agent who reviewed the first OIC offer. If the IRS administrator is not willing to negotiate, the taxpayer has 30 days from the date of the OIC denial letter to file a formal OIC appeal.
The Offer in Compromise letter should contain the following information:
- The Rhode Island taxpayer’s name, address, social security number and telephone number.
- The reason the Rhode Island taxpayer is appealing the Offer in Compromise denial.
- All changes the Rhode Island taxpayer would like made.
- Documentation outlining the tax periods or years in question.
- Federal tax law information which may support the Rhode Island taxpayer’s position.
- The Rhode Island taxpayer must sign the Offer in Compromise letter under penalty of perjury.
All Offer in Compromise appeals and negotiations can be done with out the assistance of a tax professional, but many Rhode Island taxpayers will need help. Rhode Island taxpayers who seek tax assistance should contact a tax professional who is either a tax attorney, a certified public accountant or an enrolled agent.
Completing an Offer in Compromise
Rhode Island taxpayers will need to complete the following tasks:
- Rhode Island taxpayers must complete their Offer in Compromise forms and send them to the IRS.
- Rhode Island taxpayers must send their IRS tax information to the IRS.
- Rhode Island taxpayers must complete the federal tax returns and send them to the Internal Revenue Service before the tax deadline for the next five years.
- All self-employed Rhode Island taxpayers must mail their federal tax returns and pay their estimated IRS taxes each quarter.
- All IRS taxes must be paid by Rhode Island taxpayers for the next 5 years.
- All OIC requirements must be completed by the Rhode Island taxpayer.
- Federal tax refunds from the IRS will be paid toward the Rhode Island taxpayer’s tax debt for the calendar year that the Offer in Compromise is accepted.
The Offer in Compromise can be cancelled if the Rhode Island taxpayer fails to complete all of the required tasks. The IRS can also reinstate the full amount of the taxpayer’s tax debt.
Offer in Compromise Forms
- IRS Form 656- Offer in Compromise. Rhode Island taxpayers must send form 656 to the IRS to provide information about their ability to pay their IRS tax debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. Rhode Island taxpayers must send form 443-A to the IRS to provide additional information about their ability to repay their IRS taxes.
- IRS Form 443-B- Collection Information Statement for Businesses. Rhode Island taxpayers must send form 433-B to the IRS if they are including their business debt in their Offer in Compromise.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. Rhode Island taxpayers must only send form 565-A to the IRS if they are requesting an Offer in Compromise fee waiver.