If you have significant tax debt, cleaning it up may be the ultimate holiday gift that you can give to yourself as a freelance business owner. Not only will it put you more in control of your finances, it will also free you from paying burdensome interest, penalties, and fines related to back taxes.
One of the ways to do this is to file for an Offer in Compromise or OIC. An offer in compromise allows you to settle past due taxes for an amount that is less than the full amount owed to the IRS. The IRS must agree with the taxpayer that payment in full will create a financial burden. Usually, an OIC is reserved for taxpayers with tax liabilities greater than their net worth.
If you have already filed for an Offer in Compromise (OIC) that has been accepted by the IRS, the good news this holiday season is that the Internal Revenue Service is now allowing taxpayers who have had an offer in compromise accepted by the agency to keep their tax refunds instead of the previous policy of having those refunds applied to their outstanding tax debt.
Even if you have an Offer in Compromise in place, you may be able to receive your tax refund under new IRS guidance.
When you enter an OIC with the IRS, you usually also agree to allow the agency to apply any tax refunds against your tax debt. Now the agency is also offering what they call an offset bypass refund (OBR) to many taxpayers with an OIC. The agency says this is to, “help taxpayers experiencing hardships” and will “remove barriers for taxpayers considering the OIC program.”
This means that if you are eligible for a tax your refund and the IRS accepts, or is in the process of reviewing your OIC, you may be eligible for an OBR so you can use the refund to help you cover your living expenses instead of your tax debt.
These changes are effective November 1, 2021. The IRS has also stated that if you file an amended return that action could cause your refund to be applied to an existing debt rather than being sent to you.
If you have questions about filing for an OIC, requesting an OBR, or other matters related to tax debts, it is best to consult a tax professional experienced in IRS tax resolution matters. They can guide you about your options, how to structure an OIC, and consult with you about other ways you can resolve your tax debts.
Take heart this holiday season, even if you have significant tax debt that is a burden to you and your freelance business. The OIC and OBR program and the less restrictive rules can help you make a fresh start for 2022 and alleviate back tax stress that can take a real toll on your well-being and financial situation.