An Offer in Compromise is an agreement between a taxpayer and the government to settle a tax liability by paying less than the full amount owed. The IRS may accept an offer when it is not likely that the tax liability can be collected in full and the offer amount reflects what can be collected over a reasonable period of time. The goal of the offer in compromise is to collect what is reasonably collectible at the earliest possible time and at the least cost to the government. There are three bases under which an offer in compromise may be accepted:
Doubt as to Collectibility
Under this basis, there is doubt that the amount of tax owed can ever be paid back in full. In order to successfully negotiate this type of offer in compromise, the taxpayer must demonstrate through complete and thorough financial statements and supporting documentation that there are insufficient assets and income to pay the full amount of tax owed.
Doubt as to Liability
The IRS may also accept an offer in compromise when doubt exists that the amount of tax owed is correct. The taxpayer needs to explain why they believe that they do not owe the tax that they would like to compromise. Financial inability to pay will not be considered under this basis alone.
Effective Tax Administration
Under the third basis for an offer in compromise, there is no doubt that the tax owed is correct and there are sufficient assets and income to pay the entire liability. However, the taxpayer believes that, due to exceptional circumstances, it would be unfair and inequitable to require full payment of the tax. Such circumstances can include the following:
- The taxpayer is incapable of earning a living because of a long term illness, medical condition, or disability, and their financial resources will likely be exhausted in order to provide for their own care and support.
- Although the taxpayer has certain monthly income, that income is exhausted in order to care for dependents that have no other means of support.
- Although the taxpayer has certain assets, they are unable to borrow against the equity in those assets and liquidating assets to pay outstanding tax liabilities would render the taxpayer unable to meet basic living expenses.
If the offer in compromise is accepted, payment can be made via one of three options:
- Cash (within up to 90 days of acceptance)
- Short-term deferred payment plan (payable within 24 months of acceptance)
- Long-term deferred payment plan (payable over the remaining time left on the collections statute).
Once the offer in compromise is accepted, the taxpayer must remain in compliance with all filing and payment obligations, including staying current with quarterly estimated tax payments and not incurring any new tax debt, for five years or until the offer amount is paid, whichever is longer. Failure to abide by these terms may result in the default of the offer in compromise and the reinstatement of the original tax liability.
For more information on garnishments or levies, please call us. There is no charge for an initial consultation. Whether you choose a face to face meeting at our office or a telephone consultation, you will speak directly with an experienced CPA who will provide you with a free, confidential consultation.
While our office is located in the Dallas metro area we serve clients in almost all 50 states and have clients located in many areas around the world. All aspects of tax representation can be handled easily via phone, fax, mail and e-mail.
Please contact us for an appointment. There is never a charge for your initial consultation.
Our team will present your offer in compromise to be in the best interests of both you and the government in order to ultimately settle the liability for the lowest amount possible. Whether you owe millions of dollars or only several thousand, we can help in settling your back tax debt and obtaining a fresh start towards financial freedom.