If you cannot pay your tax debt and want to apply for an offer in compromise, the experienced attorneys at Wiggam Law can help you navigate the qualifier tool, guide you through the application process, and negotiate a reduced tax bill.
An offer in compromise (OIC) is an agreement with the IRS to lower a taxpayer’s overall tax debt. The agency does not automatically accept a taxpayer’s claim that they have no hope of ever settling their full tax liability, but instead has a detailed application and negotiation process. The IRS offers the OIC Pre-Qualifier Tool to assess eligibility before beginning the complex OIC process.
The Pre-Qualifier Tool is an online form that includes questions about a taxpayer’s past and current financial and tax status. It is designed to take high-level financial data provided by an individual, combined with demographic estimates, and help a taxpayer assess whether it is worthwhile to move forward with an OIC application or seek other solutions.
Offer in Compromise
When evaluating an OIC, the IRS looks at a taxpayer’s:
- Ability to pay
- Income
- Expenses
- Asset equity
Based on these factors, the IRS determines a taxpayer’s reasonable collection potential or how much of the total debt it thinks the taxpayer should be able to pay. The agency generally won’t accept an OIC unless the taxpayer’s offer is greater than or equal to the reasonable collection potential figure. Although it is only a guide, the Pre-Qualifier Tool can help calculate an offer that might meet the IRS’s standards for reasonable collection potential.
Who Is Eligible for an Offer in Compromise?
The IRS only accepts about 40% of OIC applications per year. In addition to presenting a reasonable offer, taxpayers must also meet certain eligibility requirements. These basic requirements are among the first questions asked in the Pre-Qualifier Tool. To qualify for an OIC, a taxpayer:
- cannot be in an open bankruptcy proceeding
- must have filed all required tax returns
- must have made all required estimated tax payments
- if self-employed with employees, have submitted all federal tax deposits
Using the Offer in Compromise Pre-Qualifier Tool
The next section of the pre-qualifier tool asks for information on a taxpayer’s assets, including values and balances for:
- bank accounts
- home (plus outstanding loan information)
- vehicles
- retirement accounts
- equity in other real and personal property
- stocks, bonds, and other investments
The pre-qualifier tool asks for income of the entire household, not just for the taxpayer. Wages, interest and dividends, child support, alimony, and any other income for all persons who help pay household expenses such as rent, groceries, and insurance are to be included.
Taxpayers can input some personal expenses, including rent and mortgage as well as insurance premiums, vehicle costs, and any court-ordered payments. For household expenses, however, the pre-qualifier uses demographic information combined with the number of individuals in a taxpayer’s household to calculate other regular costs such as food, clothing, and medical.
What Does the Pre-Qualifier Tool Determine?
Based on the asset, income, and expense data, the OIC Pre-Qualifier Tool will either determine a taxpayer’s ability to pay off their overall tax liability over time or potential eligibility for an OIC. If the tool calculates that an individual can pay the overall debt, it will suggest alternatives, including installment payments.
If the pre-qualifier notes potential eligibility, it will include suggested options for offer amounts and terms. The taxpayer must then make a formal application. The entire process can take months before receiving a final decision from the IRS.
It’s important for taxpayers to remember that the actual OIC application asks for similar but much more detailed financial information. The Pre-Qualifier Tool is only a guide, and any suggestion of eligibility is no guarantee that the IRS will accept the formal OIC application. It can take months for the IRS to evaluate an application.
If you owe state taxes, you may also be able to get forgiveness through a state offer in compromise. The Georgia Department of Revenue accepts offers on individual and corporate income tax, sales tax, withholding tax, and other state taxes.
If you are considering applying for an OIC, an experienced tax attorney can help you with the application process and guide you through the process. At Wiggam Law, our team of experienced tax lawyers can help you evaluate all your options and represent you. Give us a call today at 404-233-9800 to get started.