An Offer in Compromise (OIC) is an offer made to the IRS to settle a tax debt for less than the full amount owed. This option can be a lifeline for individuals and businesses facing significant financial difficulties, but submitting a successful OIC is not easy. The Washington Post reports that, in 2022, taxpayers proposed 36,022 Offers in Compromise to the IRS. Only 13,165 were accepted, and the offer in compromise acceptance rate was only 36 percent. Tax resolution is a complex and nuanced process requiring a thorough knowledge of IRS procedures and an understanding of the financial intricacies involved. This is where the expertise of tax professionals comes into play. By leveraging their skills and using specialized Offer in Compromise tools, tax pros can streamline the process, making it more efficient and effective. We’ve got IRS Offer in Compromise tips to help you improve your acceptance rates and serve more clients in fewer hours than ever before, boosting revenue and maintaining steady, year-round income.
Offer in Compromise Tools
Tax professionals play a crucial role in guiding clients through Offers in Compromise. They assess the client’s financial situation, determine eligibility, prepare the necessary documentation, and negotiate with the IRS. The success of an OIC largely depends on the thoroughness and accuracy of the submission, making the involvement of a knowledgeable tax professional indispensable.
Offer in Compromise software is specially designed to aid tax professionals in preparing and submitting OIC applications. These tools provide several advantages:
- Accuracy and Efficiency: OIC tools help ensure that all required information is correctly compiled and submitted, reducing the likelihood of errors that could delay the process.
- Time-Saving: These tools save tax professionals valuable time by automating many aspects of OIC preparation, allowing them to serve more clients effectively.
- Enhanced Client Service: Offer-in-compromise tools, including calculators, help tax professionals provide more precise and tailored advice, improving their clients’ chances of a successful outcome.
Tax professionals who integrate these tools into their practice improve efficiency, reduce the time spent on each case, and increase their overall client satisfaction. They boost their practice’s productivity and solidify their reputation as experts in tax resolution.
What’s the Difference Between an Offer in Compromise and an Installment Agreement?
When dealing with clients’ tax debt and your client not being able to full pay, there are a couple of options. You can get your client put into a Currently Not Collectible (CNC) status, or there are two primary options to consider: Offer in Compromise and Installment Agreement. Understanding the differences between these options is crucial for tax professionals and their clients.
An Offer in Compromise is a proposal to the IRS that allows taxpayers to settle their tax debt for an amount that is less than the full amount owed. To be eligible for an OIC, taxpayers must meet specific criteria, including demonstrating that paying the full tax liability would cause undue financial hardship. The IRS considers various factors such as the taxpayer’s income, expenses, asset equity, overall ability to pay, and other Offer in Compromise special circumstances. The taxpayer must show that they cannot pay the full tax liability through other means, and the offer must reflect the taxpayer’s maximum ability to pay, calculated through a detailed financial disclosure. An OIC provides taxpayers with a fresh start by resolving their tax debt for a fraction of the amount owed, alleviating financial stress, and helping taxpayers avoid further collection actions from the IRS.
An Installment Agreement, on the other hand, is a payment plan that allows taxpayers to pay off their tax debt over time in monthly installments. This option does not reduce the total amount owed but makes it more manageable by spreading payments over a longer period. An Installment Agreement is designed for taxpayers who are unable to pay their tax debt in full immediately but can afford to make monthly payments. It allows taxpayers to avoid more aggressive collection actions, such as levies and garnishments, by staying current with their payment plan.
When evaluating an offer in compromise vs installment agreement, it is essential for a tax professional to assess each client’s financial situation and long-term goals. An OIC may provide greater relief for those in severe financial distress, while an Installment Agreement offers a practical solution for those who can manage monthly payments without compromising their financial stability. Offer in Compromise tools can examine all factors, calculate options, and recommend which proposal is most likely to be accepted.
Tips for Preparing and Submitting an Offer in Compromise
Preparing and submitting an Offer in Compromise (OIC) is a nuanced process that requires meticulous planning and execution. Our Offer in Compromise tips will improve the chances that your proposal will be accepted by the IRS.
- Conduct a Comprehensive Financial Analysis: Exhaustive financial analysis is the cornerstone of a successful Offer in Compromise. Accurately document every aspect of your client’s financial situation, including all sources of income, expenses, assets, and liabilities. Gathering necessary documentation such as bank statements, pay stubs, and expense receipts will provide a solid foundation for the OIC application and reduce the likelihood of errors or omissions that could delay or derail the process. Always keep track of records and communication with Offer in Compromise tools.
- Determine Eligibility According to IRS Guidelines: Understanding IRS requirements for OIC acceptance is crucial for determining whether your client is a suitable candidate. The IRS evaluates each offer based on the taxpayer’s income, expenses, and asset equity to determine their ability to pay. Be aware of common pitfalls such as underreporting income or overreporting expenses and ensure all submitted information adheres to IRS standards. Be realistic when valuing the assets. Remember, garbage in, garbage out. These offer in compromise tips of success will help you determine whether submitting an OIC is the best plan or if you should consider another approach.
- Create a Payment Plan: Presenting flexible payment options can increase the likelihood of IRS acceptance. Explore various options for clients to pay the agreed amount, whether through a lump sum payment or an installment agreement. Structuring a realistic plan will increase the chances of your clients ability to stick to the terms of the offer. An IRS payment plan for an Offer in Compromise can serve as an effective strategy to propose feasible resolution terms.
- Communicate Effectively with the IRS: Appropriate communication with the IRS is essential throughout the OIC process. Always use the correct form, including IRS Form 656, the official Offer in Compromise application. Develop strategies for negotiating and communicating with IRS agents, including being prepared to explain and justify the financial information provided. Maintain open lines of communication and respond promptly to any additional requests from the IRS. Regularly monitor the status of the OIC application with your Offer in Compromise tools. You’ll see updates and adjustments promptly, ensuring the process remains on track.
Opt for Tax Resolution Software with an Offer in Compromise Calculator
OIC calculators are specialized Offer in Compromise tools designed to help tax professionals and taxpayers estimate an acceptable offer amount when seeking to settle tax debt with the IRS for less than the full amount owed. These calculators consider various financial details and IRS guidelines to provide an accurate estimate of what the IRS might accept.
The calculation process begins with the input of key financial data, including the taxpayer’s income, expenses, asset equity, and liabilities. The software examines the taxpayer’s monthly income and living expenses to calculate the disposable income available for tax debt repayment. It also considers the quick sale value of the taxpayer’s assets to factor in the equity that could be used to settle the debt. The IRS Offer in Compromise calculator then analyzes this information to assess the taxpayer’s ability to pay and determine the offer most likely to be accepted by the IRS.
An OIC calculator like IRS Solutions® offers several benefits. It enhances accuracy by ensuring that all relevant financial details are considered, reducing the likelihood of errors that could lead to a rejected offer. This precision helps in estimating acceptable offer amounts more reliably, aligning closely with IRS expectations. Tax professionals who use it save time by automating complex calculations.
After successfully submitting a successful Offer in Compromise, a great tax resolution platform will help you enjoy year-round income by transitioning your client to an annual financial health plan. IRS Advance Notice™ (IAN) peers into the IRS system 24/7, alerting you to changes to transcripts, including impending audits, and giving you and your client time to prepare a defense.
Are you ready to discover the power of tax resolution software that includes everything you need to succeed in the lucrative specialty of tax resolution? Discover the powerful Offer in Compromise tools and comprehensive features included in every IRS Solutions membership. Schedule a demo today.
ABOUT THE AUTHOR
David Stone
Helping Accountants Save Time at IRS Solutions
David Stone, an enrolled agent and founder of IRS Solutions, leverages his comprehensive IRS experience to empower tax professionals in navigating complex tax disputes. A proud alumnus of California State University Northridge, David’s journey began as a Revenue Officer at the IRS, where he embraced diverse roles, including working the lien desk and becoming an Offer in Compromise specialist. His transition from the IRS to founding IRS Solutions Valencia was driven by a vision to simplify tax resolution. David’s ingenuity led to the creation of IRS Solutions Software, embodying his commitment to providing effective tools and sharing his extensive knowledge with professionals in the field. As the bestselling author of “Tax Breaks for the Rich and Famous” and “The Great Tax Escape,” David’s expertise continues to guide business owners and accountants alike.
