Understanding the Offer in Compromise Pre-Qualifier Tool
The Offer in Compromise (OIC) Pre-Qualifier Tool is an online resource designed to help taxpayers assess whether they might qualify to settle their federal tax debt for less than they owe. While the direct IRS tool has sometimes been unavailable, the concept remains a valuable first step in understanding eligibility for an OIC.
What is an Offer in Compromise (OIC)?
An Offer in Compromise is a formal agreement between a taxpayer and the IRS where the IRS agrees to accept less than the full amount of owed tax to resolve the debt. The IRS considers offers when taxpayers can’t fully pay their tax liability or paying in full causes severe financial hardship. To qualify, the IRS evaluates your income, expenses, asset equity, ability to pay, and tax compliance history. Learn more about Offer in Compromise (OIC).
How Does the Pre-Qualifier Tool Work?
The tool operates by asking you to enter detailed financial information about your household income, necessary living expenses, assets, and current tax debt. It uses IRS formulas and local expense standards to estimate:
- Whether you might reasonably qualify for an OIC
- An estimated amount the IRS might accept to settle your tax debt
For example, you’d provide income from wages and benefits, monthly housing and medical expenses, the fair market value and loan balances on your assets, and total tax debt owed. The tool then calculates disposable income and asset equity to estimate eligibility.
Who Should Use the Pre-Qualifier Tool?
- Taxpayers struggling with substantial IRS tax debt
- Individuals facing financial hardship preventing full payment
- Those seeking quick insight before investing time in a formal OIC application
- Anyone wanting to understand tax debt settlement options
What Information is Needed?
Gather your recent pay stubs, bank and investment statements, asset valuations (home, vehicles), monthly essential expenses, and tax debt details to get the most accurate estimate.
Benefits of Using the Pre-Qualifier Tool
- Provides a quick assessment of potential eligibility without filing a full application
- Manages expectations realistically about qualifying for an OIC
- No obligation to apply after using the tool
- Helps organize financial documents needed for full application
Important Limitations
- The tool provides estimates only, not a guarantee of IRS acceptance
- Final OIC decisions require IRS review and additional documentation
- Must be compliant with filing and payment requirements to apply for an OIC
- Does not replace advice from qualified tax professionals
Next Steps After Using the Tool
If the tool indicates possible qualification, consider preparing and submitting IRS Form 656, Offer in Compromise, along with supporting financial documentation. If not qualifying, explore other IRS options like installment agreements or currently not collectible status Installment Agreement.
Key Factors IRS Considers in OIC Eligibility
| Factor | Description | Impact on Likelihood |
|---|---|---|
| Income | Total monthly income from all sources | Lower disposable income favors acceptance |
| Expenses | Necessary living expenses per IRS standards | Higher allowable expenses improve chances |
| Asset Equity | Value of assets minus liabilities | Lower equity increases chance |
| Ability to Pay | Amount IRS determines you can pay | If less than debt, OIC more likely |
| Compliance | Filed all required returns and made payments | Non-compliance can disqualify |
FAQs
Is the tool binding? No, it only estimates potential eligibility and does not bind you or the IRS.
Does using the tool affect my IRS record? No, it’s for informational purposes only.
What if I don’t qualify according to the tool? You can consider other IRS options like installment agreements or currently not collectible status.
Can I use the tool if I haven’t filed all tax returns? No, compliance with filing and payment is required.
For more detailed information about submitting an Offer in Compromise, review the IRS Form 656 here.
Sources:
- Internal Revenue Service. “Offer in Compromise (OIC).” https://www.irs.gov/payments/offer-in-compromise
- Investopedia. “Offer in Compromise (OIC): Definition, How It Works, Example.” https://www.investopedia.com/terms/o/offer-in-compromise.asp
This article is designed for general informational purposes and does not constitute legal or tax advice. For personalized assistance, consider consulting a tax professional.