IRS Wage Earner Offer in Compromise: Everything You Need To Know

(May 2024)

IRS Wage Earner Offer in Compromise: Everything You Need To Know

In This Article

So, you also have an interest in finding out everything you need to know about the IRS Wage Earner Offer in Compromise. Believe it, this is something that can be incredibly useful if you owe more to the IRS than you can afford to pay. It’s like a special opportunity that the IRS offers to wage earners who are struggling with tax debt. 

Basically, an Offer in Compromise (OIC) is a program that allows you to settle your tax debt for less than the full amount owed. It’s kind of like a fresh start when you’re drowning in tax debt. The Wage Earner Offer in Compromise is specifically designed for you if you earn a wage and want to settle your tax issues once and for all.

Now, the reason you should pay attention to this is that an OIC can be a game-changer for your financial situation. If you qualify and are successful, you can reduce the amount of money you owe to the IRS. This means you can move forward with peace of mind, free from the burden of overwhelming tax debt.

But here’s the deal: applying for an OIC is not a walk in the park. There are specific requirements and a thorough application process that you need to navigate. 

This is an opportunity for you to reduce your tax liabilities and move towards a fresh start. 

Ready to dive in and learn more?

  1. What is an IRS Wage Earner Offer in Compromise?
  2. Who is Eligible for an IRS Wage Earner Offer in Compromise?
  3. Determine the Offer Amount
  4. Submit the Offer
  5. Forms to File
  6. Consideration and Acceptance
  7. Payment Terms
  8. Impact on Tax Liens and Levies
  9. Consequences of Non-Compliance

Recap 

1.  What is an IRS Wage Earner Offer in Compromise?

An IRS Wage Earner Offer in Compromise is a program that allows qualifying individuals to settle their tax debt for less than the full amount owed to the Internal Revenue Service (IRS). This option is available for you if you are experiencing financial hardship and are unable to pay your full tax debt. 

2.  Who is Eligible for an IRS Wage Earner Offer in Compromise?

To be eligible for an IRS Wage Earner Offer in Compromise, you must meet certain criteria. Firstly, you must be an individual, not a business entity. Secondly, you must have filed all the required tax returns.

Additionally, if you are making estimated tax payments, these payments must be current. Furthermore, you must not be in an open bankruptcy proceeding. Finally, you need to have explored other payment options before applying for an offer in compromise.

3.  Determine the Offer Amount

When you apply for an IRS Wage Earner Offer in Compromise, the IRS may assess your ability to pay based on your income, expenses, and asset equity. Your income includes wages, tips, and other sources of income. 

Your household living expenses, such as rent, utilities, and transportation costs, are considered as part of your allowable expenses. The IRS may also consider the value of your assets, such as real estate, vehicles, and bank accounts, in determining the offer amount.

4.  Submit the Offer

To submit an offer in compromise, you need to fill out the appropriate forms and provide detailed financial information to the IRS. The forms generally require you to disclose your assets, income, expenses, and liabilities. You also need to include a $20 application fee unless you qualify for a waiver. Additionally, you have to propose the amount you are offering to settle your tax debt.

5.  Forms to File

When you’re seeking an IRS Wage Earner Offer in Compromise (OIC), ensure you navigate the necessary forms correctly. To initiate the process based on doubts about collectibility or effective tax administration, start with Form 656, Offer in Compromise. 

Complement this with either Form 433-A (OIC) if you are a wage earner or self-employed, or consider using Form 433-B (OIC) if you are a business owner. If your OIC is rooted in doubt as to liability, switch to Form 656-L (Offer in Compromise—Doubt as to Liability) instead of Form 656. Ensuring accuracy with these documents is vital for a successful submission.

6. Consideration and Acceptance

After you submit your offer, the IRS may review your financial information and evaluate your offer in compromise. If your offer is deemed to be in the best interest of the government, considering your ability to pay and the potential for future compliance, it may be accepted.

Conversely, if the IRS believes that your offer does not accurately reflect your ability to pay, it may be rejected. So, ensure that your offer is accurately and thoroughly prepared, as errors or omissions can lead to rejection.

First, the IRS may consider an offer in compromise if there’s uncertainty about your tax liability. This arises when there’s a genuine dispute regarding the correct amount owed under the law.

Secondly, an offer in compromise can be accepted based on effective tax administration. This occurs when there’s no doubt about the legal obligation to pay taxes, and the full amount can be collected.

Thirdly, the IRS might entertain a compromise if there’s doubt about collecting the full amount owed. This doubt arises when your assets and income fall short of covering the entire tax liability.

7.  Payment Terms

If your offer is accepted, you have the option to pay the offered amount as a lump sum or in periodic payments. With a lump-sum offer, you need to pay the accepted amount in full. If you choose a periodic payment offer, you can make scheduled payments over time before the total amount is paid in full. 

Lump Sum Cash Offer

Imagine settling your tax debt by making a one-time payment or a few payments within five months. If you go for this option, you have to include a 20% payment along with a fee when you submit your application. This 20% is nonrefundable, meaning you won’t get it back even if your offer isn’t accepted. Instead, it goes towards what you owe in taxes. 

Periodic Payment Offer

Think about spreading your payments over a longer period, for example, 24 months. If you choose this route, the first payment, along with the application fee, is needed upfront and is also nonrefundable, just like the lump sum option. During the IRS review, you must stick to the agreed-upon periodic payments, all of which go towards your tax debt. 

8.  Impact on Tax Liens and Levies

One of the key benefits of an accepted IRS Wage Earner Offer in Compromise is its impact on tax liens and levies. If your offer is accepted, the IRS can release any existing tax liens filed against you. 

This can provide you with a fresh start, allowing you to rebuild your credit and move forward without the burden of tax liens. Additionally, the IRS may not levy your property or income to collect the tax liability that is the subject of the offer while the offer is being evaluated. 

9.  Consequences of Non-Compliance

Understand the implications of non-compliance if your offer in compromise is accepted. Note that if you fail to comply with the terms of your accepted offer, the IRS may revoke the offer and reinstate your original tax liability. 

This means that the IRS may resume collection activities, including levying your bank accounts or wages. Therefore, stay current with all required tax filings and payment obligations after an offer in compromise is accepted.

Recap

In conclusion, an IRS Wage Earner Offer in Compromise can provide a pathway to resolving tax debt and achieving a fresh start with the IRS. By understanding the eligibility criteria, application process, offer determination, and potential outcomes, you can make informed decisions about pursuing this option.

If you are facing challenges with tax debt, seeking professional guidance and exploring all available avenues for resolution is key to finding the best path forward.

While an IRS wage-earner offer in compromise can be a powerful tool for resolving tax debt, beware of its limitations. Note that not all applicants can qualify for this offer, and not all offers may be accepted.

Additionally, the application process can be time-consuming, and the IRS may require extensive documentation to support your offer. So, make sure you have realistic expectations and explore other potential options for resolving tax debt.

Ensure you seek professional assistance from a tax professional or attorney who specializes in tax debt resolution. These professionals can help you assess your eligibility, prepare the required financial documentation, and negotiate with the IRS on your behalf.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. . For comprehensive tax, legal or financial advice, always contact a qualified professional in your area. S’witty Kiwi assumes no liability for actions taken in reliance upon the information contained herein.

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