Once you are delinquent on your federal income taxes, the fees begin to add up. But If you are facing large tax debt and aren’t sure what to do, know that relief is possible. If you qualify for an Offer in Compromise or OIC, the Internal Revenue Service may accept a smaller amount. They may even cancel your tax debt.
While it is entirely up to the government, they must consider your OIC when it is submitted. Lately, almost half of the OIC’s submitted have been approved by the IRS were accepted. You may be reading this post because your submitted OIC has been rejected.
We will discuss all the details of applying for the OIC and then discuss form 13711. If you haven’t filed yet, it may be best to seek help from a tax professional with OIC experience, so you won’t have to face rejection.
Qualifying for Offer in Compromise with the Internal Revenue Service
You must take steps to show that you are eligible for an OIC. You will have to prove to the entity that:
- The IRS may not be able to collect the tax amount from you in the foreseeable future. This is called “doubt as to collectability.”
- Paying your tax bill in full would cause an “economic hardship,” or that it would be “unfair” or “inequitable.”
- There is doubt as to the accuracy of the tax liability.
You must disclose to the IRS:
- Your income – including taxable and non-taxable income, including child support, side jobs, and disability payments. The IRS will use this information to determine your ability to pay your taxes.
- Your expenses include healthcare, transportation, and household needs.
The Internal Revenue Service will consider your taxable and non-taxable income, the size of your family, and your financial situation when determining if you qualify. They will take your total income and subtract expenses, consider your situation, and assess your ability to pay. Use the online pre-qualifier tool to find out if you are eligible to present an offer in compromise to the IRS.
IRS Forms When Filing Taxes, Submitted an OIC, and Appealing
Without the proper forms, you cannot get relief. Here are some of the documents you will encounter when completing your taxes and while on your quest for tax forgiveness:
- Form 1040: This form is filled out each year using the information from your W-2.
- Form W-4 is filled out when you start working for a new company.
- Form 656 Booklet: This is needed to apply for the OIC.
- Form W-8 – This form is completed by foreign businesses and non-resident aliens who receive income from the U.S. This is usually completed with a withholding agent.
- Form 709: This form is for the gift tax.
The OIC Process for Federal Income Taxes
Submitting your OIC to the IRS is nothing to take lightly. You must complete FORM 656, Offer in Compromise and submit your $186 application fee. You will provide your financial information on Form 433-A for individuals or 433-B for businesses, Collection Information Statement.
The Cons of an OIC
The process is lengthy. After completing the required forms, the IRS will request documentation to verify the information you have provided. And remember, what you disclose to the IRS in the OIC process can be used against you. Interest does not stop while you’re negotiating with the IRS, so you may end up owing even more if it doesn’t go your way.
What Happens if You Are Rejected?
If the IRS denies your OIC, they will provide you with a written explanation. The reasons usually boil down to a low offer or a severe previous conviction. They will tell you what amount they will accept.
Now, you will resubmit your OIC within 30 days, so you won’t have to submit a new form, and your situation hasn’t changed. You will write a letter changing your offer, increasing the amount. This process is best left to a tax professional.
Form 13711 – Appealing Your OIC Decision
You may appeal your OIC rejection. You may first try to do this with a phone call to the person who denied the OIC. If this doesn’t work, it’s time to send your appeal to the Appeals Office.
To start a formal appeal, you will file Form 13711, Request for Appeal of Offer in Compromise. This pdf form needs to be completed and returned within a month of the rejection letter date. The officers that received the appeals are senior IRS employees.
They have good knowledge of the OIC process. They will not be performing any recalculations. But they do have more leeway to accept your offer and can approve your OIC without the appeals conference. An appeal will only be considered if you:
- Provided the IRS everything they request
- All past tax returns have been filed either by paper or electronic filing.
- You are current on payment for the current tax year.
Can I Negotiate with the IRS Myself?
While this is possible, you would be in a better position if you discussed your situation with a tax pro. Tax professionals with OIC experience can help increase your chance of settling with the IRS.
Get Help with Your Appeal and Form 13711
We never want to get to the point of the appeal, so preparing a complete package with everything needed when you submit the OIC is important. But if you are denied, it’s just time to get to work to figure out why and how to make it work. You should partner with an experienced and full-service tax professional that knows the process and how best to resolve your issue favorably.
While using TurboTax Live or TurboTax Deluxe is okay for filing tax forms, you need a tax expert for more advanced tax help. The IRS Tax Relief Network tax resolution experts are here to help you save thousands and resolve your tax issues. Work with your specialist to get your OIC approved with them.
