Reduce Your Tax Liability With an Offer in Compromise

What is an Offer in Compromise (OIC) and am I eligible?

An offer in compromise is an agreement between a taxpayer and the government that settles a tax liability for payment of less than the full amount of tax owed. IRM 5.8.1.1.1.

A taxpayer’s net realizable equity in assets must be less than the tax liability in order to qualify for an OIC. Simply, if the taxpayer were to sell all of his/her assets, the proceeds would be insufficient to cover the outstanding liability. That means the IRS would never be able to get the debt settled through tax collections. So, a big part of the offer in compromise process is verifying that taxpayers cannot fully pay under the guidelines of an Installment Agreement (full payment of tax liability in installments during the length of the collections statute – generally 5 years).

What information must I provide for an Offer in Compromise?

A taxpayer must prove one of three grounds for an Offer in Compromise: 1) Doubt as to liability; 2) Doubt as to collectability; 3) Effective tax administration. IRM 5.8.1.1.2.2. Doubt as to Collectability is the most common grounds for acceptance of an OIC. Generally, the taxpayer has to prove that the liability cannot be paid off through the remaining statutory period for collection. This includes documentation of one’s income, assets, liabilities, and expenses. Rather complicated formulas are used to calculate minimum payment amounts based on one’s financial resources.

How much money can I save with an Offer in Compromise?

This is a case-by-case assessment and there are very specific offer in compromise guidelines. Any Offer in Compromise that is accepted, by definition, will be less than the amount due by the taxpayer. The settlement amount cannot be exactly calculated in advance and a tax attorney can advise a taxpayer what settlement amount is more likely to be accepted by the IRS. Generally, a taxpayer wants to offer money from a source that would not otherwise be accessible to the IRS through the collections process – such as a loan from a friend or family member.

Can I enter into an OIC if I am in Bankruptcy?

IRS has a policy to not process an OIC if the taxpayer is already in bankruptcy. However, if the taxpayer is in bankruptcy proceedings – and not yet in bankruptcy – the bankruptcy court may order the IRS to consider an OIC. IRM 5.9.1.3.3.

Do I need to work with a tax attorney to file an Offer in Compromise?

Most taxpayers are not aware that an OIC exists. This is because it is the responsibility of the taxpayer to initiate the first proposal for compromise. The IRS generally only proposes installment agreements or currently not collectable status. The problem with both of those options is that interest continues to accrue and it becomes difficult to get out of debt. A tax lawyer will negotiate with the IRS on behalf of the taxpayer and ensure that the tax due can be settled once and for all. The tax attorney’s experience in OIC negotiations with the IRS can increase the likelihood of acceptance and reduce the amount to be paid. If the OIC is rejected, a tax attorney can initiate a tax appeal on the taxpayer’s behalf.

The Tax Lawyer - William D Hartsock offers a free consultation with the full benefits and protections of attorney client privilege. Call to set up your free consultation today and find out if an Offer in Compromise may be a viable option to reduce your tax debt.