1. Whether or not you pay off your credit card debt will not have much impact on the OIC you plan to submit to the IRS. When reviewing your application, the IRS would put your tax debt before any unsecured debts such as those from a credit card. That being the case, you are probably best to pay those off if you can due to the high interest rate they are likely charging you.
2. Health insurance is something that the IRS will look at as a necessary expense. And because of your diabetic situation, it would be in your best interest to obtain coverage if this is something you can afford to do.
3. Yes, you should keep your bank accounts as low as possible. When you submit your OIC, the IRS will look at all liquid assets that you have and would expect those to be used to pay your tax bill. They are not very generous as far as leaving you any of your liquid assets in case of emergency, so they would likely take anything you currently had in your bank accounts.
4. There are a number of sites, particularly ones sponsored by attorneys, that will give you some basic guidelines on how to prepare your OIC and what to expect. Here are a couple you may want to look at:
5. As far as getting another job, I would not recommend doing that until after your OIC has been finalized. The more income you have available, the more likely it is that the IRS will either not accept your offer or they will want a higher amount.
The whole premise behind submitting an OIC is that you need to show there is no likelihood you could ever pay this tax bill in full within the allowed 10 year statute of limitations period. If you have income or assets which would allow you to pay this bill in full over a 10 year period, then it is not likely your OIC would be accepted. So you need to keep your income and assets as low as possible at this point until after your OIC has been settled.
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Thank you korgerd, and best of luck to you in getting this resolved.