The IRS has a variety of IRS tax settlement options which are available to Virginia taxpayers and Offer in Compromise or OIC is one of the most popular. Virginia taxpayers can make the IRS an offer, which the IRS can choose to accept or deny. If the offer is accepted, all tax debt outlined in the OIC will be considered settled. Offer in Compromise is an IRS tax settlement option which may allow the Virginia taxpayer to settle their IRS tax debt for a fraction of the full amount owed.
Up to 20% of Offer in Compromise offers are denied at the initial application level. The IRS will only accept an Offer in Compromise if they believe the Virginia taxpayer will not be able to repay their tax debt with an installment agreement or with a lump sum payment. If the OIC is denied, the Virginia taxpayer may be able to negotiate or file an OIC appeal.
Virginia taxpayers who do not pay their federal tax debt may face IRS collection actions such as wage garnishments, business or personal property repossession or bank account levies. Virginia taxpayers who are interested in stopping the IRS or who want to settle their IRS tax debt should contact a tax professional for help. Offer in Compromise can be costly, time consuming and difficult to implement. It can be a good method to repay tax debt at a fraction of the full amount owed, but it may not be the best option for all Virginia taxpayers.
Three types of Offer in Compromises:
Not all taxpayers who want an Offer in Compromise will qualify for one. Virginia taxpayers must meet one of the following OIC conditions to qualify for an OIC:
1. Doubt as to Liability – The IRS may accept an OIC if there is doubt as to the accuracy of IRS tax debt which has been assessed against the taxpayer. Errors are rare, but could occur if the IRS miscalculates tax debt, misinterprets tax law or if the taxpayer provides tax documentation which has not previously been reviewed.
2. Doubt as to Collectibility – If the IRS does not believe they will be able to collect tax debt before the statutory period for debt collection ends, they may accept an Offer in Compromise. The IRS may also accept an OIC if they determine the cost to collect the tax is too high.
3. Effective Tax Administration- If a Virginia taxpayer may suffer a hardship which is unfair or inequitable they may qualify for an Offer in Compromise. The elderly and the handicapped most frequently use this condition.
Rejection of Offer in Compromise in Virginia
The IRS has been tasked by the federal government to collect federal taxes. The IRS also has the authority to determine how much the federal government is willing to accept to settle tax debt. The IRS has sole discretion to accept or deny an Offer in Compromise offer and if the offer is denied, the taxpayer can appeal the decision. If the OIC appeals are exhausted, the Virginia taxpayer will not be able to sue the IRS.
If the Offer in Compromise is denied, the Virginia taxpayer will receive written notice from the IRS which will document the reason the OIC was not accepted. Most Offer in Compromise offers will be denied because the IRS believes the offer is too low. The IRS may be willing to provide the Virginia taxpayer with a counter offer or negotiate to find an agreeable offer. If the IRS refuses to send Offer in Compromise information to the Virginia taxpayer, this information can be requested under the Freedom of Information Act.
Appealing an Offer in Compromise in Virginia
The first step in the OIC appeal’s process is to contact the IRS administrator who reviewed the Offer in Compromise. The IRS may be willing to negotiate to find a settlement amount which will be agreeable to both the government and the Virginia taxpayer. The IRS may be willing to negotiate if they believe the compromise payment will help the Virginia taxpayer meet their future tax obligations. If the IRS refuses to negotiate, the Virginia taxpayer can file a formal appeal by writing a letter to the IRS. The taxpayer has thirty days from the date of the Offer in Compromise letter to file their appeal.
The Virginia taxpayer should include the following information on their OIC letter:
- Virginia taxpayer’s full name, address, social security number and telephone number.
- A copy of the statement from the Virginia taxpayer documenting the reasons they are appealing the OIC denial.
- All proposed changes the Virginia taxpayer wants changed.
- Information about the tax periods or years in question.
- An outline of the federal tax laws which support the Virginia taxpayer’s position.
- The OIC appeal letter must be signed by the Virginia taxpayer under penalty of perjury.
Tax professionals such as certified public accountants, enrolled agents or tax attorneys can be hired to provide legal assistance for Offer in Compromise negotiations or appeals.
Completing an Offer in Compromise
The following tasks should be completed by Virginia taxpayers:
- Virginia taxpayers must send Offer in Compromise forms to the IRS by the taxpayer.
- Virginia taxpayers must send the IRS information they request. Information may include employment and vehicle information.
- Virginia taxpayers must file federal tax returns and submit them to the IRS before the federal tax deadline for the next 5 years.
- All self-employed Virginia taxpayers must file and mail their tax returns and estimated tax payments to the IRS each quarter.
- All federal taxes must be paid by Virginia taxpayers for the next five years.
- All OIC requirements must be met.
- Federal tax refunds will be applied to the Virginia taxpayer’s tax debt for the calendar year that the OIC is accepted.
The IRS has the authority to cancel the Offer in Compromise agreement and reinstate all IRS tax debt if Virginia taxpayers fail to meet all of the OIC requirements.
Offer in Compromise Forms
- IRS Form 656- Offer in Compromise. Virginia taxpayers must send Form 656 to the IRS to provide them with information about the taxpayer’s ability to pay their IRS tax debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. Virginia taxpayers must send Form 443-A to the IRS to provide additional information about the taxpayer’s ability to repay their IRS taxes.
- IRS Form 443-B- Collection Information Statement for Businesses. Virginia taxpayers must send Form 433-B to the IRS only if the Virginia taxpayer is including their business debt in their Offer in Compromise.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. Virginia taxpayers must send Form 565-A to the IRS only if they are requesting an Offer in Compromise fee waiver.