Tax Attorney Darrin T. Mish discusses the Offer In Compromise program in settling tax debts for less.

Settlement of tax debt is quite different than other legal settlements.

There are generally three (3) types of offers you can make:

  1. Cash settlement offer – Is an offer that is paid within five (5) months of the acceptance of the offer-in-compromise by the IRS. A cash settlement offer is the amount of monthly disposable income over a period of 48 months plus value of the other assets of the taxpayer available for collection at the time of the offer. Monthly disposable income is your monthly income less the amount of allowable expenses such as housing, utilities and other living expenses.
  2. Short-term deferred offer – Is an offer that is paid within twenty-four (24) months of the acceptance of the offer-in-compromise by the IRS. A short-term deferred offer is the amount of monthly disposable income over a period of  60 months plus value of the other assets of the taxpayer available for collection at the time of the offer. Monthly disposable income is your monthly income less the amount of allowable expenses such as housing, utilities and other living expenses.
  3. Long-term deferred offer – Is an offer that is paid over the number of months remaining on the collection statute, or the time allowable by law in which the IRS can collect on a tax debt.  A long-term deferred offer is the amount of monthly disposable income over the remaining months plus value of the other assets of the taxpayer available for collection at the time of the offer. Monthly disposable income is your monthly income less the amount of allowable expenses such as housing, utilities and other living expenses.

Upon acceptance of the offer, your tax debt is settled and associated tax liens are released. You must agree to remain fully compliant, or file and pay your taxes timely for at least the next five (5) years after your offer is accepted. Failure to comply by the terms of this agreement can result in the extinguished tax debt being reassessed retroactively and penalties and interest may apply.