Three Types of OICs

What are the different types of OICs?

The IRS has three different criteria for accepting an Offer in Compromise:

1. Doubt as to Collectibility – This is by far the most common form of accepted settlement and easily the one our firm gets accepted most frequently. For this type of settlement, doubt exists that the taxpayer could ever pay the full amount of tax liability owed before the expiration of the collection statutes (CSED).

Example: A taxpayer owes $28,000 for unpaid taxes but agrees that she does in fact owe the tax debt. The taxpayer is effectively living paycheck to paycheck and does not have enough in assets or savings to pay off her debt in full.

2. Doubt as to Liability (DOL) – While this option is certainly a potential route, it should be noted that it is extremely difficult to successfully win a DOL argument. Generally speaking, the DOL is based on a legitimate doubt that the assessed tax liability is correct. Possible reasons to submit a DOL could include: (1) the examiner made a mistake interpreting the tax code, (2) the examiner failed to consider the taxpayer’s evidence, or (3) the taxpayer has new evidence.

3. Effective Tax Administration (ETA) – Similar to a DOL settlement, an ETA OIC is an extremely difficult option and our office generally argues that an ETA OIC be treated on doubt as to collectibility grounds. That being said, an ETA OIC is based on the argument that exceptional circumstances exist that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.

If you’re interested in learning more, then let’s schedule time to talk!