All taxpayers who have outstanding tax debt may be able to find relief through Offer in Compromise, one of the IRS most popular methods for settling IRS tax debt. Offer in Compromise or OIC may allow North Carolina taxpayers to make a settlement offer to the IRS for a fraction of the total amount of tax owed. If the Internal Revenue Service accepts the offer or “compromise” the tax debt outlined in the OIC is considered settled.
The IRS will not accept all OIC offers. OIC offers will only be accepted if the IRS concludes the tax debt can not be paid in a lump sum payment or through an installment agreement. The IRS currently denies approximate 80% of first time OIC offers but may accept more after negotiations or a formal appeal is made.
North Carolina taxpayers who are the target of aggressive IRS collection actions or who have outstanding tax debt should contact a tax professional for help. Failure to pay federal tax debt can result in wage garnishments, property repossession, fines, bank levies or imprisonment. Offer in Compromise can be expensive, difficult to implement, and time consuming. OIC is one of several IRS tax settlement options and may not be right choice for all North Carolina taxpayers.
Three types of Offer in Compromises:
1. Doubt as to Liability – If the Internal Revenue Service believes the amount of tax assessed against a North Carolina taxpayer could be incorrect, they may be willing to accept an Offer in Compromise. This condition does not occur often, but could occur if there was an IRS miscalculation, the tax laws were applied incorrectly or additional information is supplied by the taxpayer.
2. Doubt as to Collectibility – If the IRS does not think they will be able to collect the IRS tax debt before the statutory period ends they may be willing to accept an Offer in Compromise. Additionally, this condition could be applied if the cost to collect the debt is considered too high.
3. Effective Tax Administration- North Carolina taxpayers who are unable to pay their IRS tax debt without suffering a hardship which would be considered “inequitable or unfair” may qualify for an Offer in Compromise. This condition is generally applied to the elderly and handicapped.
Rejection of Offer in Compromise in North Carolina
The federal government has given the IRS the authority to accept and deny Offer in Compromise offers. Most OIC offers are denied and the North Carolina taxpayer does not have the ability to sue or pursue any legal action against the IRS to compel them to accept the offer.
The Internal Revenue Service will send a written letter to the North Carolina taxpayer if they deny the Offer in Compromise. This denial notice should detail the reason the OIC has been denied and if the offer was considered too low the letter should list the amount the IRS would consider reasonable. If the IRS refuses to provide North Carolina taxpayers information about their Offer in Compromise, taxpayers can obtain this information under the Freedom of Information Act.
Appealing an Offer in Compromise in North Carolina
Negotiations usually can begin with the IRS administrator who first denied the OIC application. If the administrator is unable or unwilling to negotiate to find an agreeable offer, a more formal appeal can be made by writing a letter to the IRS within 30 days from the date of the OIC denial letter.
The Offer in Compromise appeal letter should contain the following information:
- The North Carolina taxpayer’s social security number, name, address and telephone number.
- A copy of the statement from the North Carolina taxpayer detailing the reasons they are appealing the OIC denial.
- A list of the proposed changes or items that the North Carolina taxpayer wants changed.
- Documentation which provides information on the tax periods or years in question.
- Documentation about the federal tax laws or any other facts which may support the North Carolina taxpayer’s position.
- The appeal’s letter must be signed by the North Carolina taxpayer under penalty of perjury.
The IRS will allow the North Carolina taxpayer to represent themselves for all Offer in Compromise negotiations and appeals. If the North Carolina taxpayer prefers to seek legal counsel they must get help from an enrolled tax agent, a tax attorney or a certified public accountant.
Completing an Offer in Compromise
The following tasks must be completed by the North Carolina taxpayer:
- All OIC documentation must be completed and sent to the Internal Revenue Service by the North Carolina taxpayer.
- All requested financial information must be submitted to the IRS by the North Carolina taxpayer. Requested Information may include: a North Carolina taxpayer’s employment information, banking and vehicle information.
- All federal tax returns must be completed and sent to the Internal Revenue Service on or before the tax deadline for the next 5 years.
- All self-employed North Carolina taxpayers must make estimated federal tax payments and submit their federal tax returns every quarter to the IRS.
- All IRS taxes must be paid by North Carolina taxpayers for the next five years.
- North Carolina taxpayers must pay all tax payments outlined in the OIC agreement.
- The IRS will apply all tax refunds to the North Carolina taxpayer’s federal tax debt for the calendar year that the OIC is accepted.
If North Carolina taxpayers do not meet all of the Offer in Compromise requirements the OIC can be cancelled and the full amount of federal tax debt reinstated.
Offer in Compromise Forms
- IRS Form 656- Offer in Compromise. North Carolina taxpayers must submit Form 656 to the IRS to document their ability to pay their IRS tax debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. North Carolina taxpayers must send Form 443-A to the IRS to provide additional information about their ability to repay their federal tax debt.
- IRS Form 443-B- Collection Information Statement for Businesses. North Carolina taxpayers must send Form 433-B to the IRS if their business debt is part of their Offer in Compromise.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. North Carolina taxpayers must send Form 565-A if they are requesting an OIC fee waiver.