Offer in Compromise

What is an “Offer In Compromise” in regards to the Internal Revenue Service (IRS)

More and more often, taxpayers are finding themselves with tax debt that they simply cannot pay, and it is something that will be next to impossible for them to ever resolve. Meanwhile, the IRS uses every tool in their arsenal to collect what they can: The IRS can levy the taxpayer’s bank accounts, garnish his or her wages, repossess property, and call upon friends and neighbors in the hopes of recouping “their” money. If you find yourself in a situation like this, it may seem hopeless and as though you will never get out from under it. If you find yourself here, it may be time to contact a qualified tax attorney to determine if you should consider making an “Offer In Compromise,” or an OIC, to the Internal Revenue Service.

The Internal Revenue Code, Section 7122, authorizes the compromise of taxpayer debt. What this means to you is that it is certainly possible to settle your tax debt for less than you owe, IF YOU QUALIFY. In the wake of insistent advertisements offering to settle your tax debt for “pennies on the dollar,” it is important to first consult a qualified tax attorney to determine if an OIC is a viable option for your situation. There are negative consequences to filing an OIC that you may be unaware of; for instance, you may unknowingly grant the IRS more time to work on collecting the entire amount you owe, or you may offer substantially more than you need to in order to settle your debt. Only a qualified tax professional can assist you in avoiding these pitfalls and preparing an OIC that, taking into account your personal situation, is most likely to be accepted under the circumstances.

There are several ways you may qualify to file an OIC: First, the IRS may be willing to settle your tax debt if you simply do not have enough money or assets to pay them. If you submit an OIC under this “Doubt as to Collectability,” you will need to provide detailed asset, income, and expense statements to the IRS, and you will need to substantiate your offer. If you are concerned that you will not be able to pay the IRS the amount you owe, contact a tax attorney immediately to determine if this provision could apply to you, and to assist you in preparing your Offer.

Second, the IRS may accept an OIC if there is “Doubt as to Liability,” or if there is some legal or factual reason that you may not in fact owe the tax. If this is your situation, you should contact a tax attorney immediately to assist you in handling this matter. Negotiating with the IRS, specifically over the likelihood that you will win at trial, is a very specialized process.

Third, the IRS is authorized to accept an OIC under circumstances which would otherwise lead to failure of “Effective Tax Administration.” In other words, if enforcing your tax debt would cause an undue hardship, then there may be a way to settle your debt for less. This situation requires extreme circumstances; if you think that your situation may qualify, it is important to contact a tax professional immediately to evaluate your options.

The most important step you can take to remedy your outstanding tax debts is to contact a professional to assist you. Tax litigation is complex and full of sinkholes and pitfalls for the unwary. Don’t let your Offer In Compromise be the one that is denied because it was improperly prepared or because your situation was not fully explained; contact us today to help you evaluate your options!

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