One option for California taxpayers with back taxes is an Offer in Compromise. An Offer in Compromise (OIC) is an agreement between the I.R.S. and a liable taxpayer that settles the debt for less than the full amount owed.
There are three types of OICS’s:
- Doubt as Collectibility: Doubt that the taxpayer will ever be able to pay the full amount of back taxes owed within the remaining collection period
- Doubt as to Liability: Doubt that the tax liability is correct due to a) misinterpretation of the law or b) failure to consider taxpayer’s evidence or c) the taxpayer has new evidence
- Effective Tax Administration: Even if the tax liability amount is correct and the taxpayer is able to repay it, the I.R.S. may accept an OIC if the taxpayer can demonstrate that the collection of the tax would result in dire economic problems or would be inequitable.
An Offer in Compromise can be paid in a lump sum, in short term, periodic payments (the sum total within 24 months) or in deferred periodic payments (the sum total within a longer period of time).
While an ideal option for many, California taxpayers will not qualify for an Offer in Compromise if the I.R.S. believes that the debt can be paid in full, either in small payments or in one lump sum. If a Notice of Federal Tax Lien has already on record before the OIC is accepted, it will not be released until the OIC terms are met or the liability is paid.