Offer in Compromise (OIC) is an agreement between the taxpayer and the Internal Revenue Service to negotiate and pay a tax liability for less than the total amount owed. The Internal Revenue Service will agree to an Offer in Compromise if a taxpayer meets certain criteria and is not in a position to pay their federal tax debt in full. The Internal Revenue Service will only agree to an Offer in Compromise when it considers the offer to be in the best interest of the federal government and the taxpayer.
Alabama taxpayers who have federal tax debt and are unable to pay, may want to contact a tax professional such as a tax attorney or tax accountant to discuss all available tax settlement options. Failure to pay federal tax debt can result in heavy fines and penalties, bank account levies, repossession of personal property and wage garnishments. Do not wait to call for help. Tax professionals in Alabama are familiar with the debt collection tactics of the IRS and can help provide relief.
Offer in Compromise in Alabama
Alabama taxpayers may be able to pay a small percentage of their total Internal Revenue Service debt they owe through Offer in Compromise. Offer in Compromise is offered in Alabama and in all other states. The goal of Offer in Compromise is to help Alabama taxpayers meet their current tax debt obligations so they will be able to pay their future tax liability.
Approximately 20% of the OIC applications are approved in the initial review process. Hiring a tax professional who is more familiar with the submission process and the Offer in Compromise forms may help increase your chances.
Qualifying for Offer in Compromise in Alabama
- Doubt as to Liability – Alabama residents who doubt the amount of their outstanding tax debt may be able to prove Doubt as to Liability. Taxpayers must submit an explanation to the IRS outlining why they doubt the liability amount. Taxpayers may want to discuss other less costly and difficult ways to review their tax debt liability with a tax professional with out filing for Offer in Compromise.
- Doubt as to Collectibility- The Internal Revenue Service must believe there is a doubt that the tax debt will ever be collected. Under this condition, there is not a doubt as to the amount of tax liability only the ability to collect.
- Effective Tax Administration- The Alabama resident is not disputing the amount of tax debt owed, only that collection of the federal tax liability would “create an economic hardship which is inequitable and unfair”. This is mainly used for the disabled and elderly.
Additionally Alabama residents must meet the following criteria:
- Individuals can not have an open bankruptcy claim
- All federal tax returns must be filed
- Offer in Compromise fee of $150 must be paid or waived
- All appropriate forms including forms 656, 433-A or/and form 433-B and all requested financial information must be submitted
- Taxpayer must be current with income taxes for the current year or if self-employed they must be current with the estimated taxes due
Rejection of Offer in Compromise Offers in Alabama
The Internal Revenue Service is required to send the Alabama taxpayer written notification of the OIC denial and the reason the offer was denied. The most common reason most Offer in Compromise applications are denied is the IRS believes the offer is too low. In the denial letter, the Internal Revenue Service must indicate the amount they have determined to be reasonable. Alabama taxpayers have the right to access all information regarding their OIC under the Freedom Information Act.
If the Offer in Compromise application has been denied, a tax professional can help you appeal the decision. A new form 656 will not need re-submitted unless there has been a substantial change in your financial situation or you fail to make your new offer with in 30 days from the date of the denial.
Appealing an Offer in Compromise in Alabama
The OIC administrator who denied your first Offer in Compromise application may be the best place to start for negotiations. Failure to get a more favorable decision may require you to file a more formal appeal. A letter must be sent to the IRS with in 30 days of the denial letter to make a formal appeal. Tax professionals have the necessary experience to negotiate appeals. The IRS has the ability to refuse your Offer in Compromise and they can not be sued by Alabama taxpayers for failure to accept offers. To increase the chances that your Offer in Compromise application will be accepted, you must complete the following tasks:
- Federal tax returns must be filed
- Accurate and detailed financial records which are request by the IRS must be submitted
- Self-employed individuals must make estimated quarterly tax payments
- Federal tax debt for the previous years must be paid
Alabama Tax Professionals
Alabama taxpayers who are considering Offer in Compromise may want to contact a tax professional for help. Tax professionals who are familiar with the Offer in Compromise process will include enrolled tax agents, tax attorneys and tax accountants. If you are not able to file an Offer in Compromise, there may be other tax settlement options available. It is important to take immediate action if you have a federal tax liability and not wait for the Internal Revenue Service to find you.
Benefits of Offer in Compromise
- Temporarily stops debt collection efforts by the IRS
- Allows the Alabama taxpayer to potentially pay less than their original tax debt
- Can stop tax liens against property after the OIC is complete
- May allow the Alabama taxpayer to avoid filing personal bankruptcy
- Alabama residents may be able to eliminate the worry and fear associated with having a large tax liability and dealing with the IRS tax collectors.