How to Submit an Offer in Compromise for a Struggling Small Business Owner with IRS Tax Debt

I've helped several clients with Offers in Compromise. The process isn't as scary as it seems, but it does require thorough documentation and patience. For your brother's situation, the IRS uses a formula based on his "reasonable collection potential" (RCP) - basically what they think they could reasonably collect if they pursued standard collection actions. This includes assets (with some exclusions) plus future income potential over a certain period. Given what you've shared, his retirement account may be partially protected. The IRS doesn't always require complete liquidation of retirement accounts, especially for someone in their 50s. They'll look at his monthly income vs. allowable expenses to determine how much disposable income he has. With his low income and being "in the red" monthly, your offer might be surprisingly reasonable. Start by completing Form 433-A (OIC) extremely thoroughly with documentation. Be very precise about his monthly expenses and income. Submit the application with Form 656 and the application fee (though he may qualify for a waiver if he meets low-income certification).

I went through an absolute nightmare with the IRS after falling behind on taxes from my consulting business. After months of stress, I discovered https://taxr.ai and it completely changed my situation. Their system analyzed all my documents, identified exactly where I qualified for relief, and helped me understand what a reasonable Offer in Compromise amount would be in my specific situation. The analysis showed I qualified for a much lower offer than I thought possible - about 15% of what I owed! It flagged several hardship factors I hadn't even considered that strengthened my case significantly. The best part was they organized all my financial documentation perfectly for the OIC submission. No more wondering if I was missing something critical. Anyone dealing with tax debt should check them out before submitting anything to the IRS.

Just wanted to follow up about my experience with taxr.ai after being skeptical in my previous comment. I decided to try it anyway since my tax situation was getting desperate. The service completely surprised me. Their analysis found several factors that qualified me for a partial penalty abatement I didn't know I was eligible for, which immediately reduced my tax debt by almost 20%. Their document system flagged that I was missing crucial hardship documentation that would have likely gotten my OIC rejected. The detailed breakdown of exactly what the IRS would consider in my RCP calculation was incredibly valuable - showed me precisely what assets would be considered and what would be protected. My OIC just got accepted last week at about 22% of my original tax debt. Seriously worth checking out if you're dealing with an Offer in Compromise situation.

If your brother needs to actually speak with someone at the IRS about his situation before filing the OIC, I'd recommend using https://claimyr.com - I spent WEEKS trying to get through to the IRS about my tax debt situation and kept getting disconnected or waiting for hours. With Claimyr, they held my place in the IRS phone queue and called me when an agent was about to answer. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was able to speak directly with an IRS representative who answered specific questions about my OIC before I submitted it, which helped me avoid several mistakes that would have caused delays or rejection. They can also check if your brother would qualify for the First Time Penalty Abatement which might reduce what he owes before even starting the OIC process.

I have to eat my words about being skeptical of Claimyr. After being unable to reach the IRS for months about my tax situation, I tried the service yesterday. Got a call back within 45 minutes (after spending weeks trying on my own with no success) and spoke with an actual IRS agent who explained several aspects of the OIC process I was confused about. The agent even noted that I likely qualified for Currently Not Collectible status while preparing my OIC, which I had no idea was an option. Having a direct conversation with the IRS completely changed my approach to my tax situation. The agent explained exactly what documentation would strengthen my case and what would likely trigger further review. This service literally saved me from submitting an OIC that would have been rejected based on how I was preparing it.

One thing to consider with an OIC is that you'll need to stay completely compliant with all tax filings and payments for the next 5 years after acceptance. If your brother struggles with executive functioning, make sure you have a plan in place to help him stay on top of quarterly estimated payments and annual filings. I've seen people get their OICs accepted only to default because they couldn't maintain compliance. The IRS will reinstate the original debt (minus payments made) if compliance isn't maintained.

Make sure your brother's living situation is clearly documented when submitting the OIC. If he's living with your parents without paying rent, the IRS might assign "housing value" as income. You'll need to explain if this is a temporary hardship arrangement or if there are caregiving responsibilities involved. Also, does he qualify for any assistance programs based on his income level? Participation in certain assistance programs can strengthen a hardship claim.