Struggling with tax issues and unsure about your next steps? One common question we hear at Creative Tax Solutions is “How long does an offer in compromise take?” This blog will clarify that timeline and delve into what you must prepare, the process itself, and the applicable rules.
Here at Creative Tax Solutions, we are dedicated to supporting you with your tax concerns in Florida and across the US. In this post, we’ll break down everything you need to know about the offer in compromise to help you see if it’s the right path for you.
Understanding an Offer in Compromise
So you’re wondering how long an offer in compromise takes. Let’s start by explaining what an offer in compromise actually is.
An offer in compromise (OIC) is a program from the IRS that allows you to settle your tax liabilities for less than the amount you owe. This can be a lifeline if you’re unable to pay your full tax debt due to financial hardship.
This program isn’t for everyone, and it requires careful consideration of your financial situation. To qualify, you need to have filed all required tax returns and made any necessary estimated tax payments. Also, you shouldn’t be in an open bankruptcy proceeding, and if you’re a business owner, you must have made all required tax deposits for the current and past two quarters.
Applying for an OIC starts with completing specific forms that outline your financial information to prove that paying the full amount of your taxes would create a significant financial hardship. The IRS then uses this information to decide whether to accept a reduced amount.
When submitting an OIC, you need to include a $205 application fee along with your initial payment proposal, which could be a lump sum or periodic payments. This part of the process is crucial because these payments are non-refundable and will be applied to your tax liability.
It’s vital to understand that an OIC requires meticulous documentation and often the guidance of a tax professional to navigate effectively.
At Creative Tax Solutions, we specialize in helping individuals and small businesses in Florida and across the US handle these and other complex tax issues. If you’re feeling overwhelmed, we’re here to assist in evaluating your situation and guiding you through the OIC process.
Eligibility for an Offer in Compromise
So you’re wondering how long an offer in compromise takes. Let’s first understand who can apply for this relief and the requirements they must meet.
Who Can Apply?
Individuals and businesses struggling to pay their tax liabilities might consider an offer in compromise (OIC). This option allows taxpayers to settle their debt for less than what they owe. However, not everyone qualifies. You must meet specific criteria to apply for an OIC.
Key Requirements
Tax Compliance
To qualify, you must have filed all required tax returns and made any necessary estimated tax payments. This shows the IRS that you are making a genuine effort to stay compliant with your tax responsibilities.
No Open Bankruptcy Proceedings
You cannot be in the midst of an open bankruptcy proceeding. The resolution of your tax debts must wait until bankruptcy processes are complete.
Up-to-Date With Current Year Obligations
If the current year’s tax deadline has passed, you should have either filed the return or obtained a valid extension. Businesses must have made all required federal tax deposits for the current and two previous quarters.
Use of the Pre-Qualifier Tool
The IRS provides an Offer in Compromise Pre-Qualifier tool online. This resource helps determine your eligibility by reviewing your income, expenses, and asset equity.
Financial Analysis
Low Income Certification
If your adjusted gross income (AGI) falls below a certain threshold, which varies by state and family size, you might not need to pay the application fee or initial payment when submitting your OIC.
National and Local Standards
The IRS uses national and local standards to assess your ability to pay. National standards cover necessary living expenses, while local standards are used to evaluate housing, utilities, and transportation costs.
Application Process
You must complete specific forms, including Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses, and submit Form 656. These forms require detailed financial information to help the IRS determine your Reasonable Collection Potential (RCP).
Financial Commitment
An initial payment must accompany your application, which is not refundable. This can be a lump sum or made through periodic payments. During the review period, you must continue to make these payments.
Understanding the Conditions
An offer in compromise is not guaranteed. It requires careful consideration and often, the assistance of a tax professional. Each case is unique, and the IRS evaluates each based on the taxpayer’s specific circumstances. Should your OIC be accepted, you must adhere to the terms, including staying current on all future tax obligations to prevent default.
How Long Does an Offer in Compromise Take?
So you’re wondering how long an offer in compromise takes. Typically, the entire process can vary significantly, but it generally takes about six to 12 months to complete. Here’s a step-by-step breakdown of the timeline and what influences it.
Initial Review and Submission
Once you submit your application, including Form 656 and the initial payment, the IRS begins its review. This initial phase involves verifying that all necessary documents and payments are in order. The completeness of your application can affect how quickly it moves to the next stage. Always ensure your documentation is accurate to avoid delays.
IRS Evaluation Period
The IRS then evaluates your financial information to determine your Reasonable Collection Potential (RCP). This involves an in-depth analysis of your income, expenses, and asset equity. The complexity of your financial situation can extend this phase. During this time, all collection activities are typically suspended, providing some relief from creditors.
Decision and Response
The IRS aims to respond within six months after receiving a completed application. However, if your case involves disputes or requires additional information, it can take longer. If the IRS does not make a decision within two years, your offer is automatically accepted under the tax law provisions.
Completion of Payment
If your offer is accepted, you’ll need to meet the payment terms specified in your offer. This could be a lump sum or a periodic payment plan. You must adhere to this schedule to avoid defaulting on the agreement.
Possible Delays
Various factors can delay the process:
- Incomplete application materials
- Additional information requested by the IRS
- Appeals or disputes regarding the IRS’s decision
To navigate this process effectively, consulting with a tax professional like from our team at Creative Tax Solutions can be very beneficial. We can help ensure your application is thorough and guide you through any issues that might arise during the IRS’s review.
How We Help With Your Offer in Compromise at Creative Tax Solutions
Considering an offer in compromise (OIC) can be pretty daunting, but don’t worry—Creative Tax Solutions is here to help, whether you’re in Florida or anywhere across the US.
Getting You Qualified
First things first, we’ll sit down with you to figure out if you qualify for an OIC. This involves checking over your past tax returns, understanding your current income, and evaluating your assets and debts.
We use this info to calculate your Reasonable Collection Potential (RCP). The IRS uses the RCP to decide if they’ll accept your compromise, and we’re here to make sure they see the full picture.
Making the Application Process Smooth
Filling out the IRS forms can be tricky and getting them wrong can set you back. Our team takes care of all the details, ensuring everything is spot-on and submitted correctly. We aim to make the process as smooth and hassle-free as possible.
Negotiating on Your Behalf
It’s more than just paperwork for us. We stand by your side, negotiating with the IRS to get you the best possible deal. This can mean less debt, fewer penalties, and sometimes getting rid of property liens and levies altogether.
Keeping the IRS at Bay
An OIC not only helps settle your tax debts but also puts a stop to those stressful IRS collection actions like liens, levies, and wage garnishments. We’re here to shield you from these disruptions so you can concentrate on what matters most—getting back on track financially.
At Creative Tax Solutions, we get that dealing with tax issues can be stressful. We’re committed to making the process as clear and straightforward as possible.
Let us take the tax burden off your shoulders, so you can breathe a little easier. Trust us to guide you through each step with the warmth and expertise you deserve.