Facing overwhelming tax debt can be an exasperating and daunting experience for individuals and businesses alike. The Internal Revenue Service understands the challenges taxpayers encounter and offers a lifeline through the Offer in Compromise (OIC) program. It is an initiative by the IRS that provides eligible taxpayers with a fresh start to settle their tax debts. An Offer in Compromise allows qualifying taxpayers to settle their tax liabilities for less than the full amount owed.
However, the IRS has set specific conditions for an individual to be qualified for OIC. In fact, it is usually very difficult to win an OIC case, unless one has a sound case to argue.
Let’s see how you can qualify for an Offer in Compromise in Inglewood, CA.
To qualify for an Offer in Compromise in Inglewood, CA, taxpayers must demonstrate one of the following:
A. Doubt as to Liability:
This condition applies if the taxpayer believes that the tax liability assessed by the IRS is incorrect. This may be due to an error or misinterpretation.
B. Doubt as to Collectibility:
Here, the taxpayer proves that they cannot afford to pay the full tax debt within a reasonable timeframe. The common reason is often due to financial constraints.
C. Effective Tax Administration:
This criterion applies if the taxpayer can pay the full tax amount, but doing so would create significant economic hardship. In some cases, it may be possible to prove that paying full amount would be unfair and inequitable.
Eligibility Criteria for Offer in Compromise:
To determine if you qualify for an Offer in Compromise, you must meet specific eligibility criteria established by the IRS. While the OIC program is designed to assist taxpayers, it is essential to understand that not everyone will qualify. The following factors are considered in the eligibility assessment:
A. Tax Compliance:
Before submitting an Offer in Compromise, the taxpayer must be up-to-date with all required tax filings. This includes federal income tax returns for individuals or corporate tax returns for businesses.
B. Payment Options:
The IRS offers multiple payment options to settle tax debts, and applicants must explore these before applying for an OIC. If the taxpayer can afford to pay through an installment agreement, they might not be eligible for OIC.
C. Equity in Assets:
The IRS will evaluate the taxpayer’s assets, including real estate, investments, and other valuable possessions. If the taxpayer possesses significant equity in assets, the likelihood of qualifying for an OIC diminishes.
D. Income and Expenses:
The IRS assesses the taxpayer’s current financial situation to ascertain their ability to pay the tax debt. This involves a detailed analysis of income, living expenses, and other necessary expenditures.
The Offer in Compromise Application Process:
Applying for an Offer in Compromise involves thorough preparation and accurate submission of the required paperwork. To initiate the process, taxpayers must complete IRS Form 656, OIC, and Form 433-A to disclose their financial status.
Once the forms are complete, the applicant must pay a non-refundable application fee unless they meet specific low-income criteria. The IRS will then review the application and may request additional information if necessary.
It’s essential to ensure all documents are accurately completed and requested information is provided promptly to expedite the process.
The Benefits and Impact of Offer in Compromise:
Successfully obtaining an Offer in Compromise can offer significant benefits to qualifying taxpayers. It not only helps to reduce tax debt but also alleviates financial stress and allows regaining control of finances. Additionally, an approved OIC may prevent further collection actions by the IRS, such as wage garnishment or bank levies.
However, it’s crucial to understand that an Offer in Compromise approval also comes with responsibilities. The taxpayer must adhere to all tax obligations for the following five years.
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Zee Maq is a content writer who specializes in writing business and finance content. She has nine years of experience and loves to provide problem-solving content to help people tackle challenges in their everyday lives.