Smart Solutions For Federal Tax Issues
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Who is eligible to apply for an offer in compromise?

On Behalf of | Jun 11, 2024 | Tax |

Receiving notice of federal tax liability from the Internal Revenue Service (IRS) can be stressful. Failure to address this crucial issue may lead to the agency imposing fines and penalties.

If you struggle to pay your tax debt in full, consider applying for an offer in compromise (OIC). If you are wondering if you are eligible, here’s what you need to know.

Who can apply for an OIC?

An OIC allows individuals to settle their debt for less than the amount they owe. The IRS offers this option to those who cannot pay their total tax liability or face financial hardship.

When approving requests for an OIC, the agency considers various factors, like the individual’s ability to pay, expenses and income.

To be eligible, you must have filed all required tax returns and paid all estimated fees. Moreover, if you are applying for an OIC for the current year, you should also have a valid extension. Employers are also eligible if they have completed tax deposits for the current and past two quarters before sending their application.

Unfortunately, the IRS does not accept all the applications. The agency may deny your request if you are undergoing an active bankruptcy proceeding.

However, when the IRS returns your application, it will also return the application fee you have paid. Additionally, all offer payments you made may be transferred to your balance due.

Explore your options for tax debt resolution

Generally, the IRS approves an OIC when the amount you will pay after approval represents the most it can expect to receive within a reasonable period.

That said, it is still wise to explore other debt resolution options before applying. Not everyone gets approval, so exhausting other options before resorting to an OIC can be a good decision.