Offer in Compromise Acceptance Rate Hits a New High
Newly released statistics show that the IRS has been accepting Offers in Compromise at a higher rate than at any other time during the 21st century. During 2013 and 2014, the IRS accepted 40% or more of all submitted offers.
An Offer in Compromise (OIC) is essentially an offer by a taxpayer to settle tax debt for less than the full amount owed. You have probably heard commercials on TV and the radio from companies promising to help settle tax debt with the IRS “for pennies on the dollar.” Many of these nationally advertised tax resolution firms have been forced out of business by consumer protection laws, due to their false advertising.
In reality, whether or not you qualify for an OIC, and the amount the IRS is willing to settle for, largely depends on your current financial situation. As part of the process, the IRS requires that you submit a financial information statement signed under penalty of perjury. This is used by the IRS to assess the amount that they can reasonable expect to collect from the taxpayer. This type of offer is referred to as an OIC Doubt as to Collectability.
For the first decade of this century, the acceptance rate for OICs hovered between 25-30%. The biggest cause of the increase in the acceptance rate since then is the Fresh Start initiative announced in 2012. As part of this initiative, the IRS relaxed the financial scrutiny that is applied during the OIC evaluation process. For example, the IRS previously would not consider student loan payments or delinquent state and local taxes as allowable expenses when calculating the taxpayer’s ability to pay. Other improvements include allowing a portion of the taxpayer’s vehicles and bank accounts to be excluded from the calculation. As a result of these changes, the average accepted OIC is for less than half of what it would have taken previously.
Once an offer is accepted and a taxpayer pays the amount indicated, the remainder of the debt will be written off, and existing federal tax liens will be released. To increase the chances that an offer will be accepted, a taxpayer should consult with an experienced tax attorney prior to submitting an offer.