Taxes can prove to be hard for some. If a small business owner in Birmingham, Alabama, is facing financial hardship due to some unforeseeable circumstances, taxes can add more harm to the business. As Alabama is among the nation’s highest when it comes to taxes, small businesses here don’t like taxes as business owners in other tax-friendly states do. Business owners should see tax as a constructive tool required for the betterment of society rather than an undue burden on their shoulders. This is why the IRS provides them an attractive option to settle the unpaid taxes of individuals and businesses that they think will be unable to pay their taxes.
Offer in Compromise or OIC is a tool to sort the problems related to the above-mentioned issue. OIC is basically an agreement between Tax enforcing authority and taxpayer, which enables taxpayers to settle their tax liabilities by paying an amount less than what is due or in installments.
Conditions to be Qualified for OIC Proram in Birmingham, AL
If you want to be qualified for the OIC program in Birmingham, AL, you must fulfill all or some of the following conditions:
- File All Tax Returns:
The IRS requires two submissions from the taxpayer regarding tax. 1st is the payment of tax, and the second is to file the returns for the tax year. If you want to avail the offer in compromise, you must file all your tax returns for the period you are applying the offer in compromise. It doesn’t mean that you have to pay all the taxes mentioned in returns, you just need to submit returns.
- Made Tax Payments for current year:
The second requirement is that the taxpayer must have paid all required estimated taxes for the preceding years.
- Federal Tax Deposits:
If the taxpayer is a business entity, it is also required to make all required federal tax deposits for the ongoing quarter. This condition is valid only for businesses.
If a taxpayer fulfills all criteria mentioned above, the IRS still won’t accept an offer in compromise option if the amount offered by the taxpayer is not equal to or greater than their reasonable collection potential. Reasonable Collection Potential or RCP is the IRS’ tool to measure the taxpayer’s ability to pay. RCP is derived from all the assets of the taxpayer. Taxpayers have to convince IRS that;
- There is considerable doubt as to liability. There must be a genuine dispute as to the existence of a tax amount under the law.
- The taxpayer is unable to make the payment even if he wants to. This applies to financially constrained taxpayers. Under this condition, the taxpayer’s total assets must be less than the tax payable.
- Effective tax administration is also a good reason for offer in compromise. It is only allowed when the IRS accepts that full payment of the tax owed will cause an economic hardship on taxpayers.
The Bottom Line:
There are two options available for taxpayers to pay the offer in compromise after the offer is accepted. They can either pay a Lump sum amount against the tax or pay the amount in installment. There is no fee required for OIC in case of ‘doubt as to liability’ or if the taxpayers qualifies for OIC on a low income exception. If you think you are eligible for OIC, contact your tax resolution firm so that they can arrange that for you.
Contact UTS today!