An Offer in Comprise (OIC) is a written agreement between the IRS and a taxpayer that enables the taxpayer to pay a lesser amount in full satisfaction of an unpaid tax liability, including interest and penalties.
Generally, the taxpayer must submit Form 656 and a user fee when requesting an Offer in Comprise.
The IRS compromises tax liabilities in three circumstances:
- Doubt as to liability.
- There is a genuine dispute about the existence or amount of the tax.
- Doubt as to collectibility.
- The taxpayer cannot pay the full amount and meet basic living expenses.
- Effective tax administration.
- Collection would create a significant economic hardship or exceptional circumstances make collection unfair or inequitable.
A compromise will be rejected if the taxpayer has a history of noncompliance, has taken deliberate actions to avoid paying tax or has encouraged others to refuse to comply with tax laws.
Following acceptance of an OIC, a taxpayer must comply with all federal tax filings and payment requirements, including estimated tax and tax deposits, for five years.
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