An Offer in Compromise (OIC) lets certain taxpayers resolve their tax debt with the IRS. It’s usually for less than the total amount owed. An OIC letter is your formal request to the IRS. It explains why they should accept a lower payment.
Need help crafting that perfect OIC letter? You’re in the right place. We’re sharing templates, examples, and samples.
Consider this your shortcut to writing a strong OIC letter. Use our resources to make the process easier. Let’s get started!
How To Write An Offer In Compromise Letter
[Your Name]
[Your Address]
[Your Phone Number]
[Your Email Address]
[Date]
Internal Revenue Service
Offer in Compromise Unit
[Address Provided by IRS]
RE: Offer in Compromise for [Your Name/Business Name], TIN: [Your TIN]
Dear Offer in Compromise Unit,
I am writing to formally submit an Offer in Compromise (OIC) to resolve my outstanding tax liability. I owe the IRS [Total Amount Owed]. This is a significant amount.
I am offering to pay $[Offer Amount] to fully satisfy this debt. This offer reflects my current financial situation. It is the most I can reasonably afford to pay.
My financial difficulties stem from [Briefly explain the reason for your financial hardship. Be specific. Examples: job loss, medical expenses, business downturn]. These circumstances have made it impossible for me to meet my tax obligations. I have included Form 656-B, Offer in Compromise Booklet, with all required documentation. This includes proof of my income, assets, expenses, and liabilities.
I understand the IRS will evaluate my ability to pay, income, expenses, and asset equity. I believe the enclosed documentation accurately reflects my financial condition. I am committed to resolving this tax matter responsibly.
I am hopeful that you will consider my offer favorably. I am ready to cooperate fully with the IRS during the review process. I look forward to your response.
Sincerely,
[Your Signature]
How to Write an Offer in Compromise Letter
Understanding the Premise of an Offer in Compromise (OIC)
An Offer in Compromise (OIC) is a legal mechanism, a fiscal lifeline for those burdened by tax liabilities they cannot realistically discharge. It provides a pathway to settle your tax debt for a sum less than the total amount owed. The IRS, in certain situations, may accept an OIC. This is an opportunity to find fiscal equanimity. However, there are stringent requirements to be met.
Eligibility and Prerequisite Considerations
Before you embark on this journey of debt resolution, assess your eligibility. Are you able to demonstrate financial hardship preventing full payment? Are you current with your filing and estimated tax payment obligations? Verify you meet these prerequisites; otherwise, your application will likely be rejected. Ensure all tax returns have been filed. Consider consulting a tax professional. They can provide invaluable guidance and may prevent missteps.
Crafting the Core: The Letter’s Anatomy
The OIC letter is your primary instrument. It should be meticulously structured, a well-reasoned plea. Begin with an unequivocal statement: I am submitting an Offer in Compromise. Include your full name, Social Security number, and the tax periods for which you are making the offer. Clearly articulate the specific tax liabilities you are addressing. Be precise. The letter’s conciseness is crucial.
Presenting Your Financial Narrative
This is the section where you will divulge your financial constraints. This is where you will lay bare the tapestry of your solvency. Provide detailed information about your income, expenses, assets, and liabilities. Substantiate every claim with supporting documentation, like bank statements and pay stubs. Transparency is your best ally. The IRS will scrutinize these details meticulously. Be prepared to provide them.
Calculating the Offer Amount: A Delicate Balance
Determining the offer amount is a pivotal calculation. It should be based on your ability to pay. The IRS will evaluate your “reasonable collection potential.” This involves assessing your assets and your future earning capacity. In some instances, you may need to calculate your “net realizable equity.” This will require calculating it based on the fair market value of your assets. Remember, the goal is to make a compelling and realistic offer.
Navigating the Submission Process: Compliance is Key
Once your letter is complete, meticulously review it. Attach all required documentation. Include form 656, which is the Offer in Compromise form. Send your OIC by certified mail, return receipt requested. This ensures you have proof of submission. Keep a copy of everything for your records. Be patient. The IRS may take several months to review your offer. This is the time to be patient.
The Post-Submission Phase: Remaining Vigilant
After submitting your OIC, remain vigilant. Respond promptly to any IRS inquiries. Keep the IRS informed about any significant changes in your financial situation. If your offer is accepted, be prepared to adhere to the terms of the agreement. If rejected, understand the appeal process. The OIC process is often complex. Keeping an eye on the requirements can be the key to success.
FAQs about how to write an offer in compromise letter
What is an Offer in Compromise (OIC) and when should I consider it?
An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. You should consider an OIC when you cannot pay your full tax liability, or doing so would create significant financial hardship.
What information should I include in my Offer in Compromise letter?
Your OIC letter should include your name, address, Social Security number (or Employer Identification Number), the tax years you’re seeking to compromise, the amount you’re offering to pay, and a detailed explanation of why you’re unable to pay the full amount owed. You must also include Form 656, Offer in Compromise, and all required supporting documentation, such as financial statements (Form 433-A or 433-B) and proof of income and assets.
How do I determine the amount to offer in my Offer in Compromise?
The IRS will evaluate your ability to pay based on your reasonable collection potential (RCP). This includes the value of your assets (like real estate, vehicles, and investments), your future income, and your expenses. You should calculate your RCP and offer an amount that is realistic based on your financial situation. The IRS provides worksheets and tools to help you determine a reasonable offer amount.
What are the common reasons why an Offer in Compromise is rejected?
Common reasons for rejection include insufficient offer amount, failure to provide all required documentation, the IRS believing you have the ability to pay the full amount, doubt as to collectibility not being established, and failure to comply with tax filing and payment requirements. It’s crucial to be thorough and accurate in your application to avoid these pitfalls.
What happens after I submit my Offer in Compromise letter, and what are my options if it’s rejected?
After submitting your OIC, the IRS will review your application. This process can take several months. During this time, collection actions may be suspended. If your OIC is accepted, you must comply with all terms of the agreement, including filing and paying your taxes on time for the next five years. If your OIC is rejected, you have the right to appeal the decision within 30 days. You can also request a conference with an IRS Appeals officer to discuss your case.
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