Solving Tax Debts with an Offer in Compromise
Owing back taxes can be stressful, but there are options beyond simply paying the full balance with interest and penalties. One powerful solution is an Offer in Compromise (OIC), which allows eligible taxpayers to settle their tax debt for less than the full amount owed.
At Holland Law Group, we help clients understand if an OIC is right for them and guide them through the complex IRS process.
What is an Offer in Compromise?
Unlike a standard monthly installment plan, which requires paying the full debt plus interest and penalties, an Offer in Compromise allows you to:
- Pay an amount based on your available income and assets
- Forgive the remaining tax debt
This can provide real financial relief for taxpayers who qualify.
Who is Eligible?
Not everyone can qualify for an OIC. The IRS generally considers:
- Ability to pay: Taxpayers with enough income and assets to pay the debt in full will usually not be eligible.
- Filing compliance: You must be up to date on tax returns, typically the last six years, to qualify.
How the IRS Calculates Your Offer
The IRS conducts a detailed analysis of your income and assets to determine what you can reasonably pay:
Income Analysis
- All sources of income are considered, including wages, Social Security, child support, and VA disability.
- Allowable expenses, often set by national or local standards, are subtracted to determine what is available to pay your tax debt.
Asset Analysis
- Equity in assets, such as homes, cars, and other property, is assessed. Loans against these assets reduce their value.
- The IRS uses quick-sale values (e.g., 80% of fair market value for real estate) and considers allowable exemptions.
- A three-year look-back for “dissipated assets” ensures that assets spent on non-essential expenses or to pay other creditors may count toward your net equity.
Importance of Accuracy
The IRS carefully verifies the information in your OIC using records and online data. Misrepresenting income or assets can result in serious consequences, including referral to the Department of Justice for criminal prosecution.
Payment Options
If approved, an Offer in Compromise offers two flexible payment options:
- Lump-Sum Offer
- Pay the net equity in assets plus 12 months of future available income
- Payment must be completed within 5 months or less
- Deferred Payment Plan
- Pay the net equity in assets plus 24 months of future available income
- Spread payments over 2 years
- Flexible options include balloon payments at the end to allow time to sell assets if necessary
Why an OIC Can Be a Game-Changer
While not available to every taxpayer, an Offer in Compromise can:
- Significantly reduce your tax liability
- Provide financial relief and peace of mind
- Offer a structured plan to resolve IRS debt without paying in full
If you're struggling with tax debt, Holland Law Group can evaluate your situation and determine if an Offer in Compromise is a viable solution. Contact us today to explore your options and speak with an experienced Florida attorney. We have attorneys throughout the state that can assist you whether you're in Miami-Dade, Hillsborough, Duval, Orlando, Sarasota, or any other area in Florida. Call (941)-306-3601 for your consultation today!
