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Offer in Compromise or OIC is defined in Wikipedia in this way.
The Offer in Compromise (or OIC) program is an Internal Revenue Service program
which allows qualified individuals with an unpaid tax debt to negotiate a settled
amount that is less than the total owed in order to clear the debt.
One of three conditions must be met in order to qualify for consideration
of an OIC settlement:
Doubt as to Liability - Debtor can show reason for doubt that the assessed
tax liability is correct
Doubt as to Collectibility - Debtor can show that the debt is likely uncollectable
in full by the IRS under any circumstances
Effective Tax Administration - Debtor does not contest liability or collectibility
but can demonstrate extenuating or special circumstances that the collection
of the debt would "create an economic hardship or would be unfair and
inequitable."
Doubt As To Collectibility
This is by far the most common, simply put you will never be able to pay your
tax bill. The IRS will accept a settlement based on the following formula:
Settlement Amount = 60 months of disposable income + the equity in all of
your assets.
If you think you qualify, you should first complete a financial statement
provided by the Internal Revenue Service. You can use Form 433-A if you are
an individual, and Form 433-B if you are a business. These financial statements
will allow you to outline everything you own, and create a monthly income and
expense table.
Your disposable income is your monthly income minus your monthly expenses.
For our example, let's say your disposable income is $100. You multiply that
by 60 months (five years) and you get $6,000. That is your minimum offer (so
far).
Now you also have to add in your equity in assets. Let's say you own a house
that is worth $200,000 and you only owe $180,000. In this case you have $20,000
in equity. This must also be added to your Offer.
Your total offer in this simplified situation would be $20,000 + $6,000, or
$26,000. What's that you say? You don't owe that much? Then you are not a candidate
for the Offer in Compromise program. But if you owe, say, $100,000 then this
is a great deal.
Lowest Acceptible Offer
The above formula may be applicable in cases where you owe a very large sum
and you have a significant amount of disposable income. However, "doubt
as to collectibility" implies the inability to pay. The IRS has been known
to accept offers in compromise as low as 10%, 1%, and $1 (ONE DOLLAR.) If your
disposable income is $0, if you do not expect to have disposable income for
some years, you have special circumtances, you have zero assets and if paying
this debt would cause a hardship, the IRS has been known to accept ONE DOLLAR
to settle your tax liability through the Offer In Compromise.
In a recently accepted "Offer in Compromise" filed in 2006, a family
experienced the disability of the primary wage-earner. The tax liability was
incurred in 1994, and had been accruing interest and penalties (leading to
thousands of dollars in tax liability.) The OIC form filed by the family included
the required Form 433, Collection Information Statement and expense information
(less than the accepted standard expense allowances for OIC formulation), as
well as the fee waiver form that is applicable in low-income cases (this waives
the otherwise required $150 OIC processing fee.) Because the family's expenses
exceeded their income, the disability of the wage-earner and the lack of saleable
assets, the IRS accepted their original offer of $1.
OfferInCompromiseA2Z.com is also interested in similar programs
in countries other than the United States. Almost all countries have a similar
program but finding out the details is not as easy as it might seem. Initially
we have collected information related to the US specifically, but we will start
posting articles on Offer In Compromise like programs in the UK, Australia,
Canada and other countries shortly.
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