Offer in Compromise: A Tax Relief Tool for Milwaukee Individuals and Businesses

What Is an Offer in Compromise?

An Offer in Compromise is an agreement between a taxpayer and the IRS that settles a tax debt for less than the full amount owed. It’s designed for individuals and businesses who cannot pay their total tax debt without experiencing significant financial hardship.

The IRS evaluates applications by reviewing your complete financial picture, including:

• Income
• Living expenses
• Assets and equity
• Future earning potential

Using this information, the IRS calculates your Reasonable Collection Potential (RCP)—the amount they believe they can reasonably collect from you. If your RCP is less than your total tax liability, you may be eligible for an OIC.

Who Qualifies for an Offer in Compromise?

To qualify for an OIC, you generally need to meet one of three conditions:

1. Doubt as to Collectibility

This is the most common qualification. It applies when the IRS determines that you cannot pay your tax debt in full based on your current financial situation.

Example:
Sarah, a Milwaukee resident, owes $50,000 in taxes. She earns $2,500 per month, which barely covers her basic living expenses. She has no significant assets or savings. Given her financial hardship, Sarah may qualify for an OIC under this criterion.

2. Doubt as to Liability

This applies if you believe the tax debt assessed by the IRS is incorrect, whether due to a calculation error or a misunderstanding of tax laws.

Example:
John, a Milwaukee business owner, was assessed $30,000 after an audit. He believes the IRS incorrectly calculated his taxable income. While disputing the debt, he submits an OIC, arguing doubt as to liability.

3. Effective Tax Administration

This rare qualification applies to individuals who can technically pay their tax debt but would face extreme hardship or injustice if forced to do so.

Example:
Emily, a retired Milwaukee resident, owes $25,000 in taxes but only has $40,000 in savings, which she needs to cover medical expenses. Paying her tax debt would leave her unable to afford essential care, making her eligible for an OIC based on effective tax administration.

Who Might Not Qualify for an Offer in Compromise?

While the program offers significant relief, not everyone will qualify. Some common reasons for rejection include:

1. Sufficient Income or Assets

If you have enough income, savings, or assets to fully or partially pay your debt, the IRS will likely deny your OIC application.

Example:
Mike, a Milwaukee contractor, owes $20,000 in taxes but owns a second property with $30,000 in equity. The IRS may require him to liquidate the property or secure a loan to pay his tax debt.

2. Non-Compliance with Tax Filing Requirements

Before applying for an OIC, you must have filed all required tax returns and made any necessary estimated payments.

Example:
Lisa, a Milwaukee resident, owes back taxes but hasn’t filed her tax returns for the past two years. She must file all missing returns before the IRS will consider her OIC application.

3. Unrealistic Offer Amounts

The IRS will reject offers that are significantly lower than the applicant’s Reasonable Collection Potential.

Example:
Tom, who owes $100,000, submits an offer of $500, even though he owns a profitable Milwaukee-based business. His offer is unrealistic, and the IRS will likely reject it.

Key Tips for a Successful Offer in Compromise

To improve your chances of success, follow these guidelines:

• Ensure Compliance: File all required tax returns and make any necessary estimated payments before submitting your OIC.
• Provide Accurate Information: Be honest and thorough in detailing your financial situation. The IRS scrutinizes all applications.
• Submit a Realistic Offer: Base your offer on your actual financial circumstances and Reasonable Collection Potential.
• Get Professional Help: Navigating the OIC process can be complicated. Working with an experienced tax resolution professional ensures your application is complete and has the best chance of approval.

How Francetic Tax Resolution Can Help Milwaukee Residents

At Francetic Tax Resolution, we specialize in helping Milwaukee residents resolve their tax problems. With years of experience in tax resolution, we understand the ins and outs of the OIC program and can guide you through every step of the process.

We’ll review your financial situation, prepare and submit all necessary paperwork, and negotiate with the IRS on your behalf. Whether you’re dealing with back taxes, penalties, or liens, we’ll help you find the best solution to resolve your tax debt and regain peace of mind.

Don’t let tax debt control your life—let us help you find relief through an Offer in Compromise or other tax resolution options.