IRS Tax Audit Lawyer

Frequently Asked Questions (FAQ)

OFFER IN COMPROMISE

Do You Qualify for an Offer in Compromise?

Why would the IRS agree to accept less money than it is owed?

The IRS would of course love to receive the full amount of money owed to it; however, the Internal Revenue Service is aware that in some cases it needs to be more flexible and understanding of taxpayers’ current financial hardships.

The IRS established the Offer in Compromise Program to help taxpayers who may have difficulty in paying the full amount of their tax debt.

The goal of an Offer in Compromise (OIC) is to resolve the tax indebtedness in such a way that in the federal government and the taxpayer’s best interests.

The IRS will consider the following reasons for an OIC:

1.    Doubt as to Liability: This reason involves a taxpayer who can demonstrate that it is uncertain whether the amount of money the IRS claims is owed is accurate.

2.    Doubt as to Collectibility: This reason involves a taxpayer who can show that, based upon the taxpayer’s assets and income, he or she cannot afford to pay the IRS the full amount of the tax debt within a reasonable period of time.

3.    Effective Tax Administration: In very limited cases, the IRS may allow a taxpayer to pay less if the taxpayer can show that it would be unfair to require him or her to pay the whole amount, even if the taxpayer could pay the full amount.

What is an Offer in Compromise (OIC)?

An offer in compromise (OIC) is an agreement between the taxpayer and the IRS.  The OIC is a way to resolve the taxpayer’s tax debt for less than the full amount owed to the Internal Revenue Service.

An offer in compromise will not be accepted by the IRS if the Internal Revenue Service believes that the tax debt can be paid in full in a lump sum or through a payment agreement.

The IRS will accept a taxpayer’s OIC if the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP).

The RCP is how the Internal Revenue Service measures a taxpayer’s ability to pay.  The IRS will review a taxpayer’s assets, including real property, automobiles, bank accounts, etc. to determine whether a taxpayer can pay the tax liability in full. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenditures.

What are the requirements for an Offer in Compromise?

In order for an offer in compromise to be considered by the IRS, specific requirements must be satisfied:

1.    The taxpayer cannot be a debtor in a current bankruptcy proceeding
2.    The taxpayer must submit a $150 application fee or a signed Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment
3.    The taxpayer must submit one of the following payments with Form 656, Offer in Compromise application:
a.    Lump Sum Offer:  The taxpayer must include twenty (20%) percent of the lump sum offer with Form 656.
b.    Periodic Payment Offer: The taxpayer must include the first installment with Form 656.

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