Offer in Compromise

An offer in compromise (offer) is a contract between you (the taxpayer) and the IRS that settles a tax debt for less than the full amount owed. This applies to all taxes, including any interest, penalties, or additional quantities emerging under the Internal Revenue Code.

It provides eligible taxpayers with a path towards settling their tax debt and getting a “fresh start.” The ultimate goal is a compromise that fits the best interest of both the taxpayer and the IRS. To be considered, typically you must make an appropriate deal based on what the IRS considers your true ability to pay. It may be a legitimate option if you can’t pay your complete tax liability, or doing so develops a monetary difficulty.

A typical myth or understanding, thanks to ads, is the impression that taxpayers can quickly settle their tax liability “for cents on the dollar” through the offer in compromise program. While you can certainly obtain a lower settlement of your tax debt, these advertisements provide an incorrect perception that the majority of offers are suitable which many deals will be accepted (even improper offers).

The IRS considers your special set of facts and situations. So it is important that you have representation from an experienced tax professional, such as the Tax Attorney Network, so that your interests are safeguarded and that an appropriate deal is made based on your:

Ability to pay;
Earnings;
Expenses; 
Possession.

The OIC application requires you to explain your financial circumstance in full to the IRS, so before you proceed you need to want to make a complete and total disclosure of all your finances.

Eligibility For An Offer In Compromise

Before the IRS will consider your offer, you need to:
(1) submit all income tax return you are lawfully required to file,
(2) make all required approximated tax payments for the existing year, and
(3) make all required federal tax deposits for the present quarter if you are a business owner with workers.

In addition, you are not qualified if you remain in an open bankruptcy case.

The OIC program is an option for taxpayers who are unable to pay their tax amounts in a swelling amount or through an installation agreement and have exhausted their search for other payment arrangements. To qualify for the OIC program, taxpayers should have the ability to demonstrate and prove that their tax amount owed can not be settled under either a lump sum payment or installation arrangement.

All other payment choices need to be considered before submitting an offer in compromise. The Offer in Compromise program is not for everyone.

The IRS may legally deny an offer in compromise for one of the following factors:

• Doubt As To Liability: There is doubt as to whether the evaluated tax is proper.
• Doubt As To Collectability: There is doubt that you could ever pay the full amount of the tax owed. In these cases, the overall quantity you owe should be higher than the sum of your assets and future earnings.
• Promote Effective Tax Administration: There is no doubt that the evaluated tax is correct and no doubt that the quantity owed could be gathered, but you have a financial hardship or other special scenarios which may enable the IRS to accept less than the balance due.
• Lump Sum Cash: Must be paid within 5 or fewer installations within 5 or fewer months from notification of acceptance.
• Short Term Periodic Payment: Must be paid within 24 months (2 years) from the date the IRS receives the OIC.

Generally, the IRS will not accept a deal if you can pay your tax debt completely through an installation contract or a lump sum payment.

It is essential to note that penalties and interest will continue to accumulate throughout the offer evaluation procedure.