You owe taxes? Cannot pay now?

(Part 2)

WE talked about other payment plans in our other newsletter. Now let us explore Offer-in-Compromise “OIC” under Code section 7122. OIC is a tax liability settlement agreement of less than the full amount of debt, between taxpayer and IRS. Here are some tips on how to prepare for OIC application.

• OIC is right for you IF: 1) it is doubtful that IRS can collect the full amount of tax liability, 2) there is lawful dispute to the amount owed, and 3) full amount collection of tax obligation would result in financial hardship.

• Use the pre-qualifier tool in the IRS website to help determine if OIC is suitable for you.

• To be eligible you must:  filed all required tax returns, have received a bill for tax debt, and paid all estimated tax payments required for current year. And for business owner with employees, paid federal tax deposits required for the current quarter.

• You are not eligible for OIC if you are currently in bankruptcy proceeding. Contact the centralized insolvency operation at 1-800-973-0424 if you are not sure of your bankruptcy status. Have your bankruptcy case number and taxpayer identification number available prior to your call.

• IRS will not accept your OIC if you can pay your tax liability in full or through an installment agreement or other payment options. Refer to our previous newsletter.

• Your offer must show your ability to pay

• If you want to apply OIC for your personal and business, submit separate Form 656 one for personal and one for your business.

• Use the right version of the Forms.

• Complete Form 656 OIC based on doubt as to liability with: 1) collection information statement Form 433-A for salary earners and self-employed, and/or 2) Form 433-B for business, and 3) pertinent supporting financial documents.

• Your offer should be equivalent to the amount calculated on Form 433-A or Form 433-B.

• Mail your application Form 656 to the correct IRS processing office of your state. California residents mail to: Brookhaven Internal Revenue Service, COIC Unit, PO Box 9007, Stop 681-D, Holtsville, NY 11742-9007.

• Complete Form 656-L OIC if you have lawful doubt that you owe part or all of the tax liability with statement in writing explaining why the tax liability is not correct. Failure to provide a statement in writing could cause the offer to be returned and will NOT be considered.

• Mail your application Form 656-L to: Brookhaven Internal Revenue Service, COIC Unit, PO Box 9008, Stop 681-D, Holtsville, NY 11742-9008.

• Send in your application through certified mail with return receipt for your proof of records.

• DO NOT submit offers Form 656-L and Form 656 at the same time. Application for Form 656 will be returned with No further consideration.

• After an offer is submitted, you must continue to file timely, pay current tax obligations, and pay estimated taxes.

• After an OIC is accepted, you must continue to file timely, pay current tax obligations, and pay estimated taxes.

• You cannot dispute the tax liability established by a final court decision.

In accordance with IRS Circular 230, this communication is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

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Sy Al-os Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies.