IRS Offer in Compromise (OIC)| Learn OIC Timeline for Success

An Offer in Compromise (OIC) is a valuable option for taxpayers who cannot pay their full tax liabilities. This program allows them to settle their tax debt for less than the amount owed, providing significant financial relief.

Understanding the timeline for the Offer in compromise process is crucial for success. Knowing what to expect helps applicants prepare their documents, manage monthly payments, and meet the requirements for the initial payment and application fee.

This article guides through the essential steps and timeframes involved in negotiating with the IRS, enabling individuals to navigate the process with confidence and clarity.

What is the IRS Offer in Compromise?

An Offer in Compromise (OIC) is an IRS program that allows taxpayers to settle their tax debt for less than the full amount owed. The purpose of an OIC is to help individuals who are unable to pay their entire tax liabilities, providing them with a way to clear their debt and move forward. This compromise program can be a lifeline for those facing significant financial difficulties.

Offer in Compromise Requirements

To qualify for an OIC, taxpayers must meet specific eligibility requirements:

• Tax Liabilities: The taxpayer must have an outstanding tax debt that they cannot fully pay. This includes all federal tax deposits and other tax liabilities.

• Financial Situation: The taxpayer’s financial situation must demonstrate that they are unable to pay the full tax debt. This involves providing detailed information about monthly income, monthly expenses, bank statements, and equity in assets.

• Legitimate Doubt: There must be a legitimate doubt that the taxpayer can pay the full amount. This means their reasonable collection potential, including future income and realizable equity, is less than the full tax liability.

• Low-Income Certification Guidelines: Taxpayers who meet the Low-Income Certification guidelines do not have to pay the application fee or initial payment. These guidelines are based on the Federal Poverty Guidelines and consider the taxpayer’s monthly income and family size.

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How Long Does The IRS Review and Respond to Offer in Compromise Applications?

Understanding the timeline for the IRS review and response process is crucial for anyone submitting an Offer in Compromise (OIC). Knowing what to expect can help applicants prepare adequately and manage their expectations throughout the process.

Here’s a detailed look at the typical timeline:

Initial Review Period

After submitting an OIC, the IRS begins with an initial review period. This phase typically takes about 2-4 weeks. During this time, the IRS will check if all necessary forms, such as Form 656-B, and documents have been submitted correctly and if the application fee and initial payment have been paid. The IRS will also ensure that the taxpayer has filed all required tax returns and made estimated tax payments if needed.

Possible Requests for Additional Information

If the IRS needs more information to evaluate the offer in compromise, they will request additional documents. This can include further details about the taxpayer’s financial situation, such as bank statements, credit card statements, or other proof of income and expenses. The response time for these requests is usually 4-6 weeks. It’s important for taxpayers to respond promptly to avoid delays in the review process.

Time Frame for Receiving a Decision

Once the IRS has all the necessary information, they will proceed with a detailed review to decide whether to approve, deny, or return the OIC. This decision-making period can take anywhere from 6 to 12 months. During this time, the IRS evaluates the taxpayer’s reasonable collection potential, including their future income and equity in assets, to determine if the offer is acceptable.

Overall Duration from Submission to Final Decision

From the initial submission of the compromise application to the final decision, the entire process can take between 6 to 12 months. This includes the initial review, any additional information requests, and the final decision phase. Applicants should be prepared for this period of time, understanding that patience and thorough preparation are key to a successful outcome.

What to Consider After Submitting the Requirements?

After submitting an IRS Offer in Compromise (OIC), there are several important considerations to keep in mind. Understanding these aspects will help taxpayers navigate the post-submission phase smoothly.

Monthly Payments and Payment Options

Once an Offer in compromise is accepted, taxpayers must choose a payment option and adhere to the agreed terms. There are two primary payment options:

• Lump Sum Payment: This option requires a single lump sum payment, which is usually due via 5 equal monthly payments from acceptance. It allows taxpayers to settle their tax debt quickly and avoid ongoing payments.

• Periodic Payment Option: This option spreads the payments over a set period, making it easier for those who cannot afford a lump sum payment. The time frame for starting payments is typically within 30 days of acceptance, and payments continue according to the schedule agreed upon with the IRS, typically 24 months.

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How Long is the IRS Offer in Compromise Approval and Acceptance Process?

When the IRS approves an Offer in Compromise (OIC), the taxpayer receives an acceptance letter. This letter typically arrives within one month after the IRS makes its decision.

The acceptance letter outlines the terms of the agreement, including the amount to be paid and the payment schedule. It’s crucial for the taxpayer to carefully review this letter to understand their obligations and ensure all terms are clear.

Appeal The Decision If An Offer in Compromise With The IRS is Rejected

Receiving a rejection letter for an Offer in Compromise (OIC) can be disappointing, but it’s important to take immediate action. The first step is to review the rejection letter carefully to understand the reasons behind the denial. Once the reasons are clear, the taxpayer has 30 days from the date of the rejection letter to file an appeal with the IRS.

File an Appeal

Filing an appeal involves submitting Form 13711, “Request for Appeal of Offer in Compromise,” along with a detailed explanation of why the OIC should be reconsidered. The appeal must include additional documentation or information that supports the taxpayer’s ability to meet the offer requirements. It’s advisable to seek help from a tax resolution attorney, like J. David Tax Law, to ensure the appeal is comprehensive and addresses all the IRS’s concerns.

Appeal Process Duration

The appeal process can take between 6 to 12 months. During this period, the IRS will review the appeal, possibly requesting more information or clarification. Patience and thorough preparation are key, as a well-prepared appeal can significantly increase the chances of reversing the initial decision and achieving a favorable outcome.

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Conclusion

Navigating the Offer in Compromise (OIC) process can be challenging and time-consuming. It involves understanding the timeline, preparing the necessary documents, and meeting eligibility requirements. Taxpayers should not go through this complex process alone. Professional help from tax attorneys, like J. David Tax Law, can make a significant difference.

For those facing overwhelming tax debt, J. David Tax Law provides the expertise needed to manage the OIC process effectively. They offer valuable resources and professional guidance to ensure compliance and increase the chances of a favorable outcome.