Although most of the tax planning process runs like clockwork, there are still opportunities to discover a few surprises along the way. For example, you might find that your amount due to the IRS is higher than you expected or that a financial emergency has left you without enough funds to pay your bill. Fortunately, if you’re experiencing financial hardship, the IRS may accept a lower payment known as an “Offer in Compromise” (OIC). The guide below looks at this option more closely.

4 FAQ About Offers in Compromise

What is an offer in compromise?

If you are unable to pay your tax bill in full and on time for a valid reason, you may qualify for an offer in compromise. This offer is an arrangement you make with the IRS to reduce the total amount due on your tax bill.

How do you qualify?

Offers in compromise are considered individually by the IRS and the decision is based on several factors—including your overall ability to pay, your income level, your expenses, and the equity of any assets you own.

To be eligible, you must first make sure you have filed all required tax forms, as well as made any required estimated payments.

You might not qualify if the IRS determines that you can pay your bill in full through an installment plan or by liquidating assets. The IRS offers a free online assessment to see if you pre-qualify for an OIC.

What does the OIC application process involve?

If you meet the basic requirements for an OIC, it's best to work with a tax planning specialist—such as a CPA—to help prepare and review your application.

Your application will consist of two more completed forms that detail your eligibility and income. If you do not meet low-income certification, you will also need to submit an application fee. Finally, you will submit the initial payment of your proposed offer. Proposed offers can either be designed around a lump sum payment or a payment plan.

What if my application is rejected?

With help from your tax planning specialist, you should file an appeal with the IRS Office of Appeals within 30 days of receiving your rejection.

If you’re concerned about your personal or business tax liability, turn to Wilson, Rea, Beckel & Associates CPAs. Familiar with all IRS regulations, this Pagosa Springs, CO, accounting firm will help complete your OIC application and provide support throughout the process. They also offer comprehensive tax planning services to help you avoid the need for OICs on future returns—such as by adjusting your payroll withholding accurately. To learn more about their financial services, visit the firm online. If you’d like to consult with a CPA, call (970) 731-1040.