You must weigh the pros and cons of offer in compromise in light of the other options available to you. When considering whether to choose this option, you must also consider the advantages and disadvantages. The offer in compromise allows you the opportunity to reduce your tax liability relative to your current financial situation. However, settling with the IRS by way of offer in compromise might be the second-best option. For example, the requirements for accepting an offer in compromise are stringent. Taxpayers are required to have low monthly income and practically no assets. The OIC process is demanding: financial disclosures, Form 656, a detailed collection information statement, and months of waiting. When the IRS rejects the offer—which happens frequently when assets or income exceed the threshold—that preparation time and application fee could have gone toward an installment agreement, Currently Not Collectible status, or another resolution that actually fit the taxpayer’s situation.
Key Takeaways
- You must weigh the pros and cons of offer in compromise in light of the other options available to you. When considering whether to choose this option, you must also consider the advantages and disadvantages.
- In addition, keep in mind several other keep in mind that the IRS cannot collect on your federal tax liability forever.
- On the upside of the pros and cons of offer in compromise, choosing to pursue an offer in compromise may be worthwhile in terms of reducing your tax liability to a level that is consistent with your current ability to repay.
In addition, keep in mind several other keep in mind that the IRS cannot collect on your federal tax liability forever. “The Collection Statute Expiration Date (CSED) prevents the IRS from collecting taxes from after 10 years” (“Pros and Cons of Offer in Compromise”). When the IRS considers an offer in compromise, it tolls it, or basically freezes it while your submission is under review. “In other words, if you have an older liability, it might be a bad idea [to] pursue an Offer in Compromise because the CSED is about to expire” (“Pros and Cons of Offer in Compromise”).
On the upside of the pros and cons of offer in compromise, choosing to pursue an offer in compromise may be worthwhile in terms of reducing your tax liability to a level that is consistent with your current ability to repay. The offer in compromise will put the activities of collectors on hold. Therefore, ongoing collection activities such as wage garnishments begin before you file the offer in compromise. They may also continue after the filing.
Although choosing offer in compromise, which is essentially requesting non-collectible status and allowing you to be taken out of collections without the fear of levy or garnishment, sounds good and may be an optimal choice in terms of reducing your tax liability, you still have to remember that the IRS can file a federal tax lien against you at any time. If the IRS determines that you have an ability to pay, then the status of non-collectible may be removed and you will undoubtedly be required to begin paying at the income level with which you are able.
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Considering an Offer in Compromise?
The OIC process is well-defined, but the RCP calculation is what most submissions get wrong. If you’re evaluating whether an OIC is right for your situation, a brief review can confirm whether you’re likely to qualify.
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