Owing taxes can be intimidating. After all, the Internal Revenue Services (IRS) has the power to garnish your wages or seize your assets to collect the money that you owe them. These actions, however, can be prevented if you communicate promptly with the IRS about your situation. As a matter of fact, the IRS offers several programs to help you settle your tax debts—and that includes the Offer in Compromise (OIC) program.

Valid Reasons for the Offer

If you don’t have the means to pay all your tax debt, or if settling the full amount would put you in financial despair, the Offer in Compromise can be an ideal option for you, according to a former IRS tax attorney. This program allows you to lower your tax debt and pay the reduced amount in a manner that is suitable for you. The IRS, however, may only accept an OIC based on these three valid reasons:

  • If there is doubt as to liability; this means there is a genuine dispute about the amount or the existence of the tax debt.
  • If there is doubt as to collectability; this means your income or assets’ value aren’t enough to pay the tax debt in full amount.
  • Based on tax administration; you can settle your tax debt, but it would create a financial hardship or would be unjust because of unique circumstances that have happened to you.

Payment Options

You can apply for an Offer in Compromise through two kinds of payment options:

Lump sum offer

It requires you to pay your offer in five or fewer payments, within five months from the date of the IRS approval. When you submit your application, however, you need to include 20% of your offer on top of the application fee.

Periodic offer

It is payable in six or more monthly installments and within 24 months after the IRS accepts it. When you send your offer, you should also make your first payment together with the application fee. While the IRS evaluates your offer, you must continue to pay the monthly installments stated under the terms of your offer. Failure to do so will result in offer rejection and no appeal rights.

Both the 20% payment in lump sum option and first few monthly payments for periodic payments are nonrefundable. If the offer is rejected, those payments will be subtracted from your tax liability—but yes, you will still owe money to the IRS.

While OIC is a good program, the initial payments can be difficult to shell out, especially if you’re already struggling with money. So, to be on the safe side, make sure to get professional advice from reputable tax lawyers in your area. This way, you’ll know exactly the amount you should offer and if OIC is, indeed, the right option for you.