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

1. 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.
2. 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.
3. 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.
4. 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.

Offer in Compromise or OIC is an agreement between the Internal Revenue Service (IRS) and the Hawaiian taxpayer which may allow the taxpayer to settle their IRS tax debt for less than the total amount owed.  The Internal Revenue Service will only accept an OIC offer if the taxpayer meets certain conditions and the tax amount can not be paid in full or through an installment agreement.

The IRS does not accept all OIC offers, in fact, they currently deny up to 80%.  The IRS may be willing to accept an offer if they believe it will put the taxpayer in a position to meet all future tax debt obligations.  Failure to pay tax debt can result in wage garnishment, property repossession or bank account levies.

Hawaiian taxpayers who are considering an Offer in Compromise may want to contact a tax professional. Offer in Compromise can be expensive, time consuming and difficult to implement. It is only one option for Hawaiian taxpayers and may not be the best option.

Three types of Offer in Compromises:

1. Doubt as to Collectibility - The IRS doubts the Hawaiian taxpayer will be able to pay the full amount of their tax debt within the statutory time for tax collection.

2. Doubt as to Liability- There must be a legitimate doubt that the amount of IRS tax debt assessed against the Hawaiian taxpayer is correct. This can occur if the IRS examiner made a mistake in the interpretation of the law, the IRS examiner did not consider all of the taxpayer’s financial evidence, or the Hawaiian taxpayer can produce new evidence for the IRS.

3. Effective Tax Administration- The amount of tax debt assessed is correct and the IRS may be able to collect the tax debt, but there is some extenuating circumstance which makes the IRS think payment of the tax debt would cause an economic hardship which is unfair or inequitable.

Rejection of Offer in Compromise in Hawaii

The Internal Revenue Service has been given sole authority to collect taxes and to determine if they will accept Offer in Compromise offers. If the IRS denies a Hawaiian taxpayer’s OIC offer, the taxpayer may be able to appeal the decision, but they will not have any other legal recourse against the IRS.

If the IRS denies an OIC offer they will send written notification to the taxpayer identifying the reason for the denial. If the IRS determines the OIC offer is too low, they may be willing to provide a counter offer or negotiate with the taxpayer to find an offer which is agreeable to both the government and the Hawaiian taxpayer. If the IRS does not provide Offer in Compromise information to the taxpayer this information can be requested under the Freedom of Information Act.

Appealing an Offer in Compromise in Hawaii

Informal negotiations can often be done by contacting the IRS administrator who made the first OIC denial decision. If a taxpayer wants to make a more formal appeal they will need to send written notice to the IRS within thirty-days from the date of the OIC denial letter.

The formal written request for an OIC appeal must have the following information:

• Social Security number, telephone number, name and address
• A statement that the taxpayer is appealing the IRS ruling to the Appeal’s office.
• A copy of the letter sent to the taxpayer and the taxpayer’s proposed changes or items that the taxpayer wants changed and what the taxpayer does not agree with and why.
• Document the tax periods or years in question.
• Identify any tax laws or other authorities which may support the position.
• Identify any facts that may support the position with which the taxpayer disagrees.
• The taxpayer must sign the written protest under penalty of perjury.

Hawaiian taxpayers may represent themselves for all OIC appeals, but taxpayers may want to talk to a tax professional such as a tax attorney, certified public accountant or enrolled agent who can answer OIC questions.

Completing an Offer in Compromise

Hawaiian taxpayers must complete the following tasks:

• Hawaiian taxpayers must complete all OIC forms and submit them to the Internal Revenue Service.
• Hawaiian taxpayers must submit all requested financial data to the Internal Revenue Service. Financial information includes: taxpayer’s pay stubs, banking and car information.
• Hawaiian taxpayers must complete and send all federal tax returns to the Internal Revenue Service on or before the federal tax deadline for the next five years.
• All self-employed Hawaiian taxpayers must pay their estimated IRS taxes and submit their federal tax returns every quarter.
• All tax payments (except the amount outlined in the OIC agreement) must be paid by Hawaiian taxpayers for the next five years.
• Hawaiian taxpayers must pay the amount outlined in the Offer in Compromise agreement.
• The IRS will apply any federal tax refund to the Hawaiian taxpayer’s tax debt for the calendar year that the OIC is approved.

The IRS has the authority to terminate an Offer in Compromise if all the terms and conditions of the agreement are not met. If the Offer in Compromise is terminated, the IRS can charge the taxpayer the original amount of tax debt.

Offer in Compromise Forms

1. IRS Form 656- Offer in Compromise. Hawaiian taxpayers must submit IRS Form 656 to the Internal Revenue Service to provide detailed financial information about the taxpayer and their ability to pay their tax debt.
2. IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. Form 443-A provides additional information about the Hawaiian taxpayer and their ability to pay their federal tax debt.
3. IRS Form 443-B- Collection Information Statement for Businesses. Hawaiian taxpayers will need to submit IRS Form 433-B to the Internal Revenue Service if a taxpayer’s business tax debt is included in the Offer in Compromise.
4. IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. Hawaiian taxpayers who request an Offer in Compromise fee waiver must submit Form 565-A.