IRS – Offer in Compromise
Since the mid-1990’s, the IRS has made an effort to help people get caught up on back taxes without freezing bank accounts. This is accomplished through filing an offer in compromise.
IRS – Offer in Compromise
An offer in compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax liability. The IRS has the authority to settle federal tax liabilities by accepting less than full payment under certain circumstances. The reasons are:
- Doubt as to Liability: Doubt exists that the assessed tax is correct.
- Can’t Collect: Doubt exists that the taxpayer could ever pay the full amount of tax owed. The minimum offer amount must generally be equal to or greater than the taxpayer's reasonable collection potential. This figure is defined as the total of the taxpayer's realizable value in real and personal assets, plus his or her future income.
- Effective Tax Administration: There is no doubt that the tax is correct and no doubt that the amount owed could be collected in full, but exceptional circumstances exist such that collection of the full amount would create economic hardship or where compelling public policy or equity considerations provide sufficient basis for compromise. The taxpayer bears the burden of proof to show their OIC qualifies for public policy or equity considerations. This is a hard path to travel. Very hard.
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To pursue an offer in compromise with the IRS, you need to get Form 656. The form is really a packet required for making the offer in compromise. Prior to pursuing this form, however, you need to seriously consider retaining a competent attorney or CPA to represent you. If you’re filing an offer in compromise, you have a serious tax problem. This means the IRS is going to be very interested to hear from you. If you get unlucky, the IRS may start taking a very aggressive look at your circumstances and that is never good.
The advantage of using an tax professional is they will be the contact person for the IRS. Further, the professional is familiar with the tax code and can keep the IRS agent from seeking information he or she may have no right to access. Finally, anything the tax professional says can’t be used as evidence against you should the IRS start getting really mean.
If you are interested in filing an offer in compromise, tax professionals are definitely worth taking a look at. They cut the stress down and usually save you a bundle.