You may have accumulated a tax debt if you cannot earn income after an injury. The Internal Revenue Service (IRS) may not know that you cannot afford to pay your tax. Hence, they may give you a notice of the amount of tax you owe the federal agency.
Fortunately, there is a program that may help you settle your tax debt for less than the total amount you owe. This program is known as the Offer in Compromise (OIC) program. And it could help you if you know how to apply for it and what factors the IRS considers when evaluating your offer.
An offer to the IRS
The OIC program provides an avenue for taxpayers facing financial hardship or unable to meet their total tax obligations to propose a lesser amount to the federal agency. To apply for the OIC program, you must submit certain forms and supporting documents based on the reason for your request. An application fee and a payment accompanying your offer are often necessary parts of the process. Plus, you could expect to prepare supporting documentation that verifies your income, expenses, assets and liabilities.
An evaluation of your offer
The IRS will review your application and evaluate if your offer meets the following criteria, such as:
- Whether your offer matches or exceeds your reasonable collection potential (RCP)
- If your proposal aligns with the effective tax administration (ETA) policy
- Whether you’re up to date with all your tax obligations and not involved in any bankruptcy proceedings
The IRS will review your history and finances in detail before deciding on your offer, which they could accept, reject or return. If granted, you’ll need to pay the rest of your offer in a lump sum or continue monthly payments until fully paid if you choose installments. You must also stay on top of all tax duties five years after acceptance.
In short, the OIC program could be your lifeline if you cannot pay your tax debt. Application requires careful preparation and documentation, and acceptance isn’t guaranteed. But, if successful, it allows you to pay what you can and gives you a fresh start, helping avoid further tax debt issues.