Taxpayers who can’t pay their full tax liability or by doing so would create a financial hardship may qualify for an IRS “offer in compromise.”
There are three grounds on which an IRS offer in compromise can be made:
- Doubt as to liability. Allows a taxpayer to compromise a liability if the taxpayer can establish a genuine dispute as to the existence or amount of the correct tax debt under the law.
- Doubt as to collectability. Allows a taxpayer to compromise a liability if the taxpayer’s assets and income are less than the full amount of the tax liability.
- Effective tax administration. Allows a taxpayer to compromise a liability if the taxpayer may be able to fully pay the tax, but such payment would cause an economic hardship or there are compelling public policy or equity considerations.
In most cases, the IRS will not accept an offer unless the amount offered reasonably reflects collection potential. The IRS usually conducts an intensive review of a taxpayer’s financial information before considering the acceptance of an offer. This includes assessing the value that can be realized from the taxpayer’s assets such as real property, automobiles, bank accounts and anticipated future income.
We submit offers when a taxpayer’s financial information appears to support one. We do not waste a taxpayer’s time and money if we do not believe an offer will be accepted.
If the offer is accepted, taxpayers may choose to pay the offer amount in a lump sum (referred to as a “lump sum offer”) or in installment payments (referred to as a “periodic payment offer”).
If you would like for us to review the feasibility of an IRS offer in compromise, do not hesitate to contact us.