An offer in compromise is an agreement between a taxpayer and the Internal Revenue Service (IRS) whereby the IRS accepts less than the full amount owed to resolve a tax debt. The IRS may consider an offer in compromise in the following circumstances:
- Doubt of collectability. When the IRS does not believe it will be able to collect the full amount of tax owed, it may accept an offer in compromise from the taxpayer. Doubt of collectability can be because the taxpayer does not currently have the assets to pay the total tax amount, nor does the IRS believe the taxpayer will have the assets to pay the tax owed in the foreseeable future before the statute of limitations is reached.
- Special circumstances. A special circumstance is when the payment of the full tax debt will create a financial hardship for the taxpayer. Once example of a special circumstance noted on the IRS’ web site is in the event of a serious illness. The IRS may consider special circumstances even if the taxpayer has the assets to pay the full amount of the tax debt.
To be considered for an offer in compromise, the taxpayer must complete and submit the offer in compromise form found on the IRS’ web site at http://www.irs.gov/pub/irs-pdf/f656.pdf, along with a non-refundable $150 fee. If the taxpayer’s offer in compromise proposal is accepted, the $150 fee is applied to the tax debt owed by the taxpayer.
When submitting an offer in compromise, the taxpayer must specify the amount of the offer, the reason the IRS should consider an offer in compromise (along with additional documentation supporting the taxpayer’s position), and the payment option the taxpayer will use. The IRS allows for the following payment options for an offer in compromise:
- 20% of the total offer with the remaining balance paid in five or fewer payments
- The total offer paid in more than five equal monthly installments
Regardless of the payment option chosen by the taxpayer, the taxpayer must usually begin making payments according to the proposed offer in compromise plan while the IRS determines if the offer in compromise proposal is acceptable. The one exception to this is if the taxpayer qualifies for low-income certification, which is granted if the taxpayer’s gross household income falls under a defined threshold. Low-income certification allows a taxpayer to make no payments on the tax debt while the IRS is considering the offer in compromise proposal.
How can I know if the IRS will accept my offer in compromise?
In determining the acceptability of an offer in compromise, the IRS considers your income, expenses, assets, and overall circumstances that may affect your ability to pay. Determining what situation is or is not acceptable is difficult if you do not have the training and experience to understand how offer in compromises work. A tax attorney can help you with your offer in compromise, as he has experience in working with clients in similar situations who have had offer in compromise proposals accepted.
If you complete the short evaluation from below, a tax lawyer will review your situation free of charge to determine if an offer in compromise is an option for you and what amount the IRS may be willing to accept. The review is 100% confidential and there is no obligation to you. Therefore, seek professional help today in evaluating if an offer in compromise can be used to help lessen your tax burden.
Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.