Contributing Author: Kristine M. Custodio, Advanced Certified Paralegal

The first question you are likely asking is what is an Offer in Compromise or OIC? Basically, an OIC is a settlement offer to the Internal Revenue Service (IRS) seeking a reduced amount to settle your outstanding tax debt. You may be thinking, great, sign me up! However, there are requirements that must be satisfied in order to be eligible to apply for an OIC. I'll discuss two key requirements below.

1. Ability to Pay

Do you have the ability to pay your outstanding tax debt? If you have the financial wherewithal to pay off your entire tax debt through installment payments, you are not eligible to apply for an OIC. Generally, the IRS cannot accept an OIC if you have the means to pay what you owe.

2. Timely Filed Tax Returns

Did you timely file your tax returns? If you answered no, you are not eligible to apply for an OIC. You must file all required tax returns first before the IRS can even consider entering into an OIC with you, and you may need to make an initial payment which will be applied to reduce your overall tax liability.

Do you still have questions about an OIC? If so, check out the IRS's OIC Pre-Qualifier tool to determine if you meet the IRS requirements and get an estimate of what may be an acceptable settlement offer to the IRS. Be aware that you will be required to submit certain IRS tax forms when applying for an OIC along with requisite documentation in support (see IRS Form 656-B, the Offer in Compromise booklet for more information).

If you have questions about your individual or business tax matters, contact the attorneys at Butterfield Schechter LLP for more information. Our attorneys have an extensive history of tax counseling and representation with the IRS and Franchise Tax Board.