What is an Offer in Compromise?

An offer-in-compromise is an agreement between a taxpayer and the Internal Revenue Service (IRS) that settles a taxpayer’s tax liabilities for less than the full amount owed.

When Will the IRS Settle Taxes for Less?

The IRS will accept a settlement when it is in the best interests of the IRS to settle the tax debt where there is a doubt of collectibility; there is a doubt of liability; or effective tax administration. The IRS may accept an offer in compromise based on three grounds:

  • Doubt as to Collectibility – Where doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection.
  • Doubt as to Liability – Where a legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider the taxpayer’s evidence or (3) the taxpayer has new evidence.
  • Effective Tax Administration – Where there is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.

How Much Must You Pay in an Offer In Compromise?

Naturally, taxpayers want to settle their debt and pay as little as possible. The minimum amount that a taxpayer must pay is dependent upon a variety of conditions including;

  • What assets the taxpayer has available to pay the debt?
  • What is the value of these assets?
  • What are the non-tax liabilities of taxpayer?
  • What is the expected earning potential of the taxpayer?
  • What are the expenses of the taxpayer?
  • How much will the taxpayer be paying in settlement of the tax debt?
  • When will the taxpayer be making these payments?

There is no easy answer to this question. Taxpayers considering an offer in compromise should seek the help of qualified professional experienced in such matters to perform procedures to determine what the minimum amount is that the IRS will accept, when the payments must be paid and for how much and what steps can the taxpayer take to minimize the amount to be paid.

What are My Payment Options?

Generally, taxpayers can agree to pay their settlement right away, or through a series of periodic payments over time. The payments can be paid out over a short-term period of time or under a longer term deferred payment agreement. Generally, the shorter the period of time the taxpayer is requesting, the less the taxpayer will be required to pay.

When Will the IRS Reject an Offer in Compromise?

The IRS will reject an offer in compromise when the offer does not meet certain minimum acceptance standards, or the investigator determines that the proposed offer is too low or the payment terms are too protracted to recommend acceptance. In these cases, the offer in compromise investigator may negotiate a different offer amount and terms, or advise the taxpayer as to what larger amount or different terms would likely be recommended for.

How Do You Get Started?

The Offer In Compromise program is not for everyone! Unfortunately, not everyone is eligible to apply. Certain taxpayers have the ability to pay their taxes in full, or pay their tax obligations given enough time. Fortunately, for taxpayers that are not eligible, other alternatives may apply.

To get started, call or schedule a meeting with us. We will help you determine your eligibility and how to get started. In addition, we’ll gladly answer any of your general questions regarding the offer in compromise program, how it works, what your obligations are and how this can benefit you.