Business & Finance Taxes

Tax Relief - The Offer in Compromise

For tax relief, the IRS' Offer in Compromise is frequently the best solution.
In the latest published reports, the IRS claimed the average settlement discount reached in accepted Offers was 88%.
That translates to only 12 cents paid by the taxpayer for every dollar owed the IRS, and acceptance rate was 47.
The IRS created the OIC only in 1992 via Section 7122 of Tax Code.
Negotiations on OIC are often successfully concluded through one of two reasons: doubtful collectivity, or doubtful liability.
The first means the taxpayer cannot pay the full amount due, while the latter means the taxpayer argues against the tax debt.
Recently, another reason was apparently added: effective tax administration.
This means the IRS believes 12 cents is all it can get and accepts it.
However, the taxpayer has the burden of proving he cannot pay the tax, or he has no tax to pay.
The main factor for doubtful collectivity being used is the taxpayer's profile on assets, expenses and income.
Strict guidelines on income, allowable expenses (generally living, housing and transport), and equity in assets are applied, so less than half of the applications are accepted.
Another reason for submitting the OIC is that the IRS cannot collect any tax liability within the time the OIC is under consideration or for a month following rejection or when an appeal has been filed.
This time span often enables the taxpayer to avoid immediate payment, recoup his finances to pay, and prevents any assets from being seized.
Settling an accepted OIC may be done in either of two methods: in cash, usually 20% down and 80% within 90 days afterwards; or 12 monthly installment payments.

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