How Much Might You Pay With An Offer In Compromise?

Use the calculator below to estimate your payment. Please answer the following questions and then click “Estimate Payment”:

function calculateOIC() { // Get input values const monthlyIncome = parseFloat(document.getElementById(‘monthlyIncome’).value) || 0; const monthlyExpenses = parseFloat(document.getElementById(‘monthlyExpenses’).value) || 0; const assetEquity = parseFloat(document.getElementById(‘assetEquity’).value) || 0; const taxOwed = parseFloat(document.getElementById(‘taxOwed’).value) || 0; // Calculate Disposable Income: Income – Expenses const disposableIncome = monthlyIncome – monthlyExpenses; // Calculate Reasonable Collection Potential (RCP): (Disposable Income * 12 months) + Asset Equity const rcp = (disposableIncome * 12) + assetEquity; // Estimate Minimum Offer: Maximum of RCP or Tax Owed const estimatedOffer = Math.max(rcp, taxOwed); // Check qualification status let qualificationStatus; if (estimatedOffer > taxOwed) { qualificationStatus = “You may not qualify for an OIC. Consider consulting with a tax professional for more details.”; } else { qualificationStatus = “You might qualify for an OIC based on your inputs.”; } // Display the result and qualification status document.getElementById(‘result’).innerText = `Estimated Minimum Offer: $${estimatedOffer.toFixed(2)}`; document.getElementById(‘qualificationStatus’).innerText = qualificationStatus; }

Applying for an Offer in Compromise (OIC) with the IRS can be a complex and time-consuming process, and there are several reasons why you might not want to handle it yourself without professional assistance:

1. Complexity of the Application Process

• Extensive Paperwork: The OIC application involves filling out detailed forms (such as IRS Form 656 and Form 433-A or 433-B) that require comprehensive financial information, including income, expenses, assets, and liabilities.
• Detailed Financial Analysis: You must provide accurate and thorough financial documentation to support your application. Misrepresentations or errors can result in denial.
• Understanding IRS Guidelines: The IRS has specific guidelines and formulas to determine if you qualify for an OIC. A misunderstanding of these guidelines can lead to a rejected offer.

2. Likelihood of Rejection

• Low Approval Rate: The IRS approves only a small percentage of OIC applications. In 2022, for example, the approval rate was about 31%. This means that the majority of applications are rejected, often due to errors or because the taxpayer does not meet the criteria.
• Strict Eligibility Requirements: The IRS is strict about the criteria for an OIC. They will only accept an offer if they believe it is the maximum amount they can reasonably expect to collect within a reasonable period. Understanding whether you realistically meet these criteria can be challenging without professional guidance.

3. Potential for Increased Scrutiny

• Closer Examination of Finances: When you apply for an OIC, the IRS scrutinizes your financial situation very closely. This could potentially lead to an increased chance of audits or deeper investigations into your finances.
• Full Financial Disclosure: The OIC process requires full disclosure of your financial situation. If the IRS finds discrepancies or incomplete information, not only could your OIC be rejected, but you could also face penalties or additional scrutiny.

4. Risk of Miscommunication

• Misunderstanding IRS Communication: Correspondence with the IRS can be technical and difficult to understand. A professional can help you interpret IRS communications correctly and respond appropriately.
• Navigating Appeals: If your OIC is initially rejected, there is an appeals process. Knowing how to navigate this effectively requires knowledge of IRS procedures and tax law.

5. Time-Consuming and Stressful

• Lengthy Process: The OIC process can take months, or even years, to complete. It requires patience and careful tracking of deadlines and IRS requests.
• Emotional Stress: Dealing with the IRS and managing your finances under pressure can be very stressful. Hiring a professional can alleviate some of this burden.

6. Opportunity Cost of DIY

• Focus on Your Expertise: Handling your own OIC means dedicating significant time and effort away from your profession or personal responsibilities. A tax professional or attorney can manage the process more efficiently and effectively, allowing you to focus on what you do best.

7. Higher Success Rates with Professional Help

• Expertise and Experience: Tax professionals, especially those experienced in OIC applications, understand the nuances of the IRS guidelines and can craft a more compelling case for you.
• Proper Preparation: A professional can ensure that all documents are correctly prepared and submitted, minimizing the risk of errors that could lead to rejection.

Conclusion

While it is possible to apply for an Offer in Compromise on your own, the process is complex, time-consuming, and has a high potential for mistakes or misunderstandings. Given the stakes involved — including possible denial, increased scrutiny, or financial loss — it often makes sense to consult with a tax professional who specializes in OIC applications. This can increase your chances of a successful outcome and provide peace of mind throughout the process.