Outstanding IRS tax debt can be settled using a variety of IRS tax settlement options. Offer in Compromise is one of the most popular of these options because it allows the taxpayer to potentially settle their IRS tax debt for a fraction of the full amount owed. Mississippi taxpayers who have federal tax debt can use Offer in Compromise to make an offer to the IRS. If the Internal Revenue Service (IRS) accepts the offer, it is considered a compromised settlement for all tax debt outlined in the Offer in Compromise agreement.
Up to 80% of first time OIC offers will be denied by the IRS. The IRS will however, generally be willing to negotiate to find an offer amount which is agreeable to both the federal government and the Mississippi taxpayer. The IRS prefers for all tax debt to be paid in one lump sum or with an installment agreement and will only accept an OIC if these two options are not possible. Penalties and interest will accrue on the federal tax debt while the Offer in Compromise is under review. If the Offer in Compromise is accepted, collection actions will cease and penalties and interest will stop accruing.
OIC is one of several IRS tax settlement options available for Mississippi taxpayers. It can be difficult to implement, expensive and time consuming. The IRS will need detailed financial information about the taxpayer and if the OIC is denied the IRS may use this information to continue tax collection. Mississippi taxpayers should contact a tax professional such as an enrolled tax agent, certified public accountant or tax attorney if they are considering Offer in Compromise.
Three types of Offer in Compromises:
Not all Mississippi taxpayers will receive an Offer in Compromise. The IRS will only accept an OIC if one of the following conditions is met:
1. Doubt as to Liability – If there is doubt as to the accuracy of the IRS tax the IRS may accept an Offer in Compromise. Errors can occur if the IRS administrator misapplied the tax law, made a miscalculation or if the taxpayer produces additional tax information which previously was not considered. This condition is seldom met.
2. Doubt as to Collectibility – The amount of tax debt is not in question under this condition, only the ability of the IRS to collect the federal debt before the end of the statutory period. If the cost to collect the tax debt is considered too high the IRS may also accept an OIC.
3. Effective Tax Administration- Mississippi taxpayers who can prove paying their federal tax debt could cause a “hardship which is inequitable or unfair” may qualify for an Offer in Compromise. The elderly and the handicapped most frequently meet this condition.
Rejection of Offer in Compromise in Mississippi
The IRS does not accept most Offer in Compromise offers. If the Offer is not accepted the taxpayer may be able to negotiate with the IRS or the Mississippi taxpayer can make a formal OIC appeal. The IRS has been given sole authority by the federal government not only to collect taxes, but to decide if they will accept less than the full amount for payment. Mississippi taxpayers will not have any legal recourse against the IRS if their OIC is denied.
Written notice will be sent to the Mississippi taxpayer if their Offer in Compromise is not accepted. Denials are most often a result of a low offer. If the IRS determines the offer is too low they should be able to provide the taxpayer with an amount which is acceptable. If the IRS refuses to provide Offer in Compromise information to the Mississippi taxpayer, this information can be requested under the Freedom of Information Act.
Appealing an Offer in Compromise in Mississippi
The first step for the Mississippi taxpayer if their OIC is denied is to try and contact the administrator who reviewed the Offer in Compromise to find out if the IRS is willing to negotiate. If the IRS will not negotiate the Mississippi taxpayer can file a formal OIC appeal by sending a letter to the IRS within thirty-days from the date of the Offer in Compromise denial letter.
The Offer in Compromise appeal’s letter should include the following information:
- The social security number, full name, home address and telephone number of the Mississippi taxpayer.
- A statement from the Mississippi taxpayer describing the reasons for the OIC appeal.
- A statement outlining all of the issues the Mississippi taxpayer wants to negotiate.
- Information on the tax periods or years in question.
- Any evidence or a list of the federal tax laws which support the Mississippi taxpayer’s position.
- The Offer in Compromise appeal letter must be signed by the Mississippi taxpayer under penalty of perjury.
Mississippi taxpayers do not need legal counsel to file an appeal or complete the Offer in Compromise negotiations, but some taxpayers may prefer to have help from tax professionals who have experience with the process. Taxpayers who are seeking legal counsel must choose a tax professional which is one of the following: an enrolled tax agent, a tax attorney or a certified public accountant.
Completing an Offer in Compromise
Mississippi taxpayers must complete the following tasks for the Offer in Compromise:
- All OIC forms must be sent by the Mississippi taxpayer to the Internal Revenue Service.
- All financial information must be sent to the IRS. This may include: the Mississippi taxpayer’s employment records and vehicle information.
- All federal tax returns must be filed on or before the federal tax deadline for the next 5 years.
- Mississippi self-employed workers must file tax statements and make estimated tax payments each quarter.
- All IRS tax payments must be made by Mississippi taxpayers for the next 5 years.
- All Offer in Compromise payments must be made.
- Refunds will be applied to the Mississippi taxpayer’s debt for the calendar year that the OIC is accepted.
The Internal Revenue Service can cancel the Offer in Compromise if the Mississippi taxpayer fails to complete all the OIC requirements. If the OIC is cancelled, the full amount of the federal tax debt may be reinstated.
Offer in Compromise Forms
- IRS Form 656- Offer in Compromise. Mississippi taxpayers must submit Form 656 and send it to the IRS. This form will help the IRS determine the taxpayer’s ability to repay their tax debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. Mississippi taxpayers must send Form 443-A to the Internal Revenue Service to provide them with more information about the taxpayer’s ability to repay their federal tax debt.
- IRS Form 443-B- Collection Information Statement for Businesses. Mississippi taxpayers must complete this form 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. Form 565-A will only need to be filed by Mississippi taxpayers who are requesting an OIC fee waiver.