For taxpayers who have made good-faith attempts to pay bills, their efforts may have fallen short. This is when an offer in compromise (OIC) can offer financial relief. The agreement with the IRS is an option for filers who are able to pay what they can. As the area’s premier provider of bookkeeping services, ZP Tax, Inc. in Silver Spring, MD continues to help clients with these important contracts. The agency provides a helpful guide on OICs and how to qualify for one.

What Is an Offer in Compromise?

An OIC is an agreement between a taxpayer and the IRS. The tax filer essentially agrees to pay a portion of an outstanding tax bill. The amount is typically less than the total amount the IRS is seeking. In most cases, an OIC is an attempt to collect as much as possible on back taxes.

Tax filers generally have two payment options: periodic and lump sum. With periodic payments, the person pays an initial sum that they can afford. From that point, they are obligated to make monthly payments until the balance is gone.

A lump sum payment requires at least 20% of the total settlement amount upfront. Then, the tax filer will need to pay the remaining balance in a maximum of five payments. If a person is not sure which option is financially feasible, a tax preparation and bookkeeping service provider can help determine the best choice.

How Do I Qualify?

The IRS will review several factors before determining if a person qualifies for an OIC. These include the taxpayer’s income, monthly bills, and other debt. The agency will also review the value of the person’s home, car, and other assets, and most importantly, their ability to pay the OIC settlement amount.

In addition, the tax filer must not be in an open bankruptcy at the time of the OIC request. The IRS also requires applicants to be up to date on all other tax obligations. Depending on the person’s income, they may be required to pay an OIC application filing fee. Bookkeeping service providers say applicants must also be prepared to pay an initial payment immediately towards the settlement.

After all the information has been reviewed and submitted, the IRS will send the applicant a letter approving or denying the request. If it is a denial, the applicant can file an appeal within 30 days. Tax filers can turn to a bookkeeping service agent for assistance with their appeal.

Offers in compromise continue to be a financial lifeline for taxpayers. If you’re ever in a situation when paying back taxes is out of reach, ZP Tax, Inc. can assist. The tax help specialists work with individuals and business owners on OIC applications. The locally owned agency will walk you through the entire process. To learn more, call (301) 587-4829 to schedule an appointment. Visit the website for information on the firm’s complete suite of offerings, including bookkeeping services.