The Internal Revenue Service has recently relaxed the standards for their acceptance of Offers in Compromise. This easing of the requirements will result in many more OIC’s being filed and accepted.
The purpose of this series of articles is to explain how Offers work and what the criteria are for having an offer successfully handled.
First, what is an Offer in Compromise?
An Offer in Compromise is an agreement between taxpayer(s), either personal or business and the IRS, where the taxpayer is able to settle their total tax liability for less than they owe. If an OIC is accepted by the Internal Revenue Service then the person or businesses tax liability is settled and once they pay the agreed on amount, they have no further obligation to pay those taxes. Note that there are conditions that the taxpayer must meet, which will be discussed in future articles.
There are three types of Offers:
First, Doubt as to Collectibility: In this type of Offer the taxpayer simply doesn’t have the ability to make payments sufficient to pay off the tax liability within 4-5 years. Therefore it is doubtful that the Internal Revenue Service will be able to collect the amount due, because of financial hardship of the taxpayer.
Second, Doubt as to Liability: If the taxpayer has a legitimate dispute as to whether the tax is actually owed, they may be able to settle the liability with the IRS for a portion of what the IRS claims due. The dispute must be valid and not frivolous, however.
Third, Effective Tax Administration: If the taxpayer has the ability to pay, but it would work a great hardship to the taxpayer and would generally be unfair to make them pay, this type of offer may be filed. An example of this type of offer is where a retired person owns their home and has equity and therefore could pay if they sold the home, but they are living on a very limited income, this type of offer might be accepted.
The next several articles in this series will explain much more about OIC’s and how they work.
We have simplified how an OIC works for purposes of this article. Offers in Compromise are very, very complicated and if not done very carefully, will almost certainly result in a rejection. A tax attorney is highly recommended to handle an OIC. For more information about Offers, visit our website: www.martellelaw.org/offer-in-compromise