If you owe the IRS money, you might be considering an Offer-in-Compromise (OIC) as a way to settle your tax debt for less than the full amount you owe. This is the so-called “pennies on the dollar” approach you hear in ads.
While an OIC can be an excellent way to resolve your tax debt, it’s essential to understand that the IRS does not accept every Offer-in-Compromise that is submitted. In fact, the IRS rejects the majority of OICs that are submitted.
The most common reasons for these rejections include:
- Compliance Problem – All of the returns due for the last 6 years have not been filed or the current year’s estimated tax payments are not being made. This results in an immediate rejection of the offer.
- Ability to Full-Pay – The IRS has a methodology for analyzing a taxpayer’s financial situation. If the offer amount is below what they determine the taxpayer could pay, they will reject the offer.
- Dissipated Assets – The IRS finds that the taxpayer has sold assets to friends, relatives, or lenders sometime in the last 3 years. The IRS’s position is that the cash from these transactions should have been used to pay down the tax debt.
Nobody can guarantee that an OIC will be accepted. However, avoiding these 3 common problems should put you in the 95% chance of success range.