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An Offer in Compromise (OIC) is a debt settlement option offered by the IRS. It allows a person to file a tax abatement claim, but denials are common due to the IRS’s belief that they can collect more than the debtor has offered. The IRS prefers other options, such as payment plans, and warns against false claims about the OIC program.
An Offer in Compromise (OIC) is one of the debt settlement options offered by the Internal Revenue Service (IRS). This option allows a person to file a tax abatement claim. After reviewing the offer, the IRS can accept it, offer different terms, or decline it. Denials are common because the IRS often concludes that it is possible to collect more than the debtor has offered.
The IRS usually tries to satisfy people with overdue tax bills. An offer in compromise is a settlement option that allows a person to request that the IRS reduce their debt. The IRS can reject an OIC outright. This commonly happens because the amount a person is proposing is less than their reasonable collection potential (RCP). RCP is the amount the IRS thinks it can collect now, over time, or in the future.
If a person’s offer is rejected, they can apply for another UCI for a different amount. There are no limits to the number of requests that can be made. It is possible that the IRS may agree that an OIC is best, but may disagree with the terms proposed by an individual. In this case, an IRS representative can propose new terms. When the IRS accepts an offer in compromise, acceptance is based on one of three reasons.
The first reason for acceptance is the doubt of collectability. This is a situation where the IRS does not anticipate that there is a realistic chance of collecting the full amount owed. The second reason for accepting the OIC is doubtful liability. This refers to cases where there are questions or debates about whether the tax bill on file with the IRS is correct.
The third reason the IRS may accept reduced settlement is for effective tax administration. This refers to a category of circumstances where individuals can demonstrate that paying the full amount would result in unfairness or undue hardship. For example, a person may have a significant amount of financial resources but may not be able to pay taxes because she is undergoing life-saving medical treatment and does not have health insurance.
It should be noted that an offer in compromise is not the IRS’ preferred debt settlement option. Individuals are often encouraged to consider other options, such as payment plans. The agency also warns that taxpayers should beware of claims by developers that tax debts can be paid through the OIC program for so-called pennies on the dollar.
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