The Offer in Compromise (OIC) is a debt settlement
program allowing taxpayers to settle their balances with the IRS. The IRS,
however, has set pre-qualification requirements, which means only a number of
taxpayers can take advantage of this program. Here are a few things you should
be aware of to manage your expectations:
Qualification
is largely based in numbers.
The IRS uses formulas to determine a taxpayer’s ability to pay his tax debt
before it’s time to collect or before the debt expires. You have to show the IRS
that you won’t be capable of paying the total balances you owe based on your
net asset equity and future monthly disposable income.
Payroll
taxes are excluded.
Payroll taxes are considered a ‘trust fund’ of your employee’s withheld taxes.
You’re considered personally liable if you fail to pay it because it’s not your
money in the first place. Because of this, you can’t expect the IRS to accept
your offer. If you have the option, pay your payroll tax liabilities first
before your income tax liabilities.
Exhaust
other routes first. The
IRS won’t let you off the hook that easy. It will expect you to explore other
options to pay off your tax debt. This may include using credit cards, personal
loans, or even by refinancing or restructuring your other existing debts. The IRS
may also want you to try an installment agreement instead of skipping to OIC right
away. Therefore, it pays to consult an IRS tax lawyer first if such is your
case.
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