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How taxpayers can find much-needed relief via an offer in compromise - II

When a person enduring serious financial troubles receives a letter from the Internal Revenue Service demanding payment for a past-due tax debt, it can prove to be incredibly distressing. That's because unlike the typical creditor, the IRS has both vast resources and significant enforcement options at its disposal.

As we discussed in an earlier post, however, taxpayers in these scenarios do have options for relief, including the offer in compromise, which is essentially an arrangement between the IRS and a taxpayer to settle an outstanding tax debt for less than the amount owed.

To recap, any taxpayer looking to take advantage of this option must not only submit an offer that the agency believes is reflective of their true ability to pay, but also satisfy certain exacting criteria in order to even be considered.

If the taxpayer does indeed qualify, they will need to select of one of two payment options for the OIC and remit an initial payment:

  • Periodic payment: Under this payment option, the taxpayer will propose an offer to pay off the tax debt within six to 24 months via monthly installments. These payments must continue while the IRS is considering the offer and the amount of the initial payment will be dependent upon the payment plan proposed.
  • Lump sum cash: Under this payment option, the taxpayer will propose an offer to pay off the tax debt in five or fewer months, or five of fewer payments of the date that the offer is accepted. The amount of the initial payment must be 20 percent of the total offer.

Some important points to keep in mind concerning OICs include:

  • Any payments submitted in conjunction with the offer and during its consideration will be applied toward the tax debt, meaning they can't be returned. The only exception to this being if more than the required payment is made and it is designated as a deposit.
  • Refunds will be kept by the IRS for those tax periods extending through the year in which the agency accepts the OIC and applied toward the tax debt.
  • OICs will not be accepted where it's determined that the taxpayer has the ability to pay the debt in full.

Those taxpayers with questions about the complex process of submitting an OIC or other concerns relating to tax debt should strongly consider speaking with a skilled legal professional who can pursue the necessary solutions as soon as possible.

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Mr. McKellar was voted by his peers as a “Top Attorney” by Knoxville’s CityView magazine in its 2010, 2011, 2012, 2013, 2014, and 2015 editions. In 2014, 2015, and 2016, Mr. McKellar was selected as a member of the “Top 100 Trial Lawyers” by the National Trial Lawyers.

Ms. Easter was voted by her peers as a “Top Attorney” in Cityview Magazine for Family Law / Divorce / Child Support in 2012, 2013, 2014, 2015 and 2016.

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