Offer in Compromise (OIC)
An IRS program that allows qualifying taxpayers to settle tax debt for less than the full amount owed, when full payment would create a financial hardship.
Detailed Explanation
An OIC is filed using Form 656 with detailed financial disclosure on Form 433-A (OIC) or 433-B (OIC). The IRS evaluates the offer against Reasonable Collection Potential (RCP), based on assets and future income. Offers can be paid as a lump sum (within five months) or periodic payment (up to 24 months). The acceptance rate historically averages near 30% to 40%. While the offer is pending, the IRS suspends collection activity, and once accepted, the taxpayer must remain compliant for five years.
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IRS Installment Agreement
A formal payment plan with the IRS that allows taxpayers to pay tax debt over time, monthly, instead of in a single lump sum.
Penalty Abatement
IRS forgiveness of failure-to-file, failure-to-pay, or accuracy-related penalties under specific qualifying circumstances.
IRS Audit
A formal examination by the Internal Revenue Service of a taxpayer's records to verify that income, deductions, and credits were reported correctly.
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