In 2003, the Internal Revenue Service (IRS) instituted a non-refundable $150 application fee to apply for an Offer in Compromise (OIC). There are a couple of ways to waive the application fee. When you are applying for an IRS OIC and claiming a “doubt as to liability,” the fee is not applicable. If your household income falls to or below the poverty level, you can file a petition to have the application fee waived.
The Form 656-A “Offer in Compromise Application Fee Instructions and Certification” must be filled, certifying that you meet the poverty guidelines to be eligible for a waiver of the application fee. The worksheet “IRS OIC Monthly Low Income Guidelines Worksheet” is designed to assist you in determining your eligibility for the low-income waiver.
If you submit an Offer in Compromise without payment or Form 656-A, it will not be accepted by the IRS. The IRS will also reject and return any offer where a taxpayer has claimed a low income status, but is later deemed by the IRS to not qualify for a low income status. Therefore, it is extremely important for you to assess your financial situation completely and in detail before signing up on an Offer in Compromise.
Disadvantages of an Offer in Compromise
1) An IRS OIC requires you to agree to not contest in a court of law nor appeal the amount of your tax liability if your offer is accepted. This would become disadvantageous in the event of your violation of the agreement, where the IRS would rescind the OIC. The IRS will then collect the entire disputed amount from you.
2) An IRS Offer in Compromise remains in public record for a year. Anyone can examine your personal financial records during that period, which may prove disadvantageous in the medium and long term.
3) Filing the OIC can extend the 10-year statute of limitations for collecting tax debts for a year, excluding the time your OIC was under IRS review. If you wish to offer an installment agreement, it does not begin until your final payment is made.
4) You may lose all refunds for a period of five years, including the current year.
5) The IRS OIC process requires you to fully disclose to the IRS your complete financial history. If for some reason, your offer gets rejected by the IRS, the authorities would know about your assets and your disclosures may initiate an IRS audit, which is a big disadvantage.
An enrolled agent (EA) can assist taxpayers in the preparation of an Offer in Compromise. An EA must pass the IRS enrolled agent exam or possess comporable IRS employment experience before the IRS will admit them to pratice. The IRS enrolled agent test is administered by Prometric. An individual can become an enrolled agent after completion of the three part exam. While often referred to as an IRS enrolled agent, the EA does not work for the IRS. The IRS does not sponsor an official IRS enrolled agent training program, but there are several IRS enrolled agent courses available to help CPAs and other tax preparers earn the valuable credential.
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