Basis for an Offer in Compromise
Internal Revenue Code authorizes the IRS, to accept less than full amount of tax liability owed in any civil or criminal case arising under the tax laws prior to the case's referral to the Department of Justice. For an Offer in Compromise to be accepted, the taxpayer must establish to the satisfaction of the IRS that the taxpayer either: has no means of paying the tax, or does not actually owe the tax.
I Don't Owe The Tax Bill!
The taxpayer must prove that the amount of tax or any penalties being billed by the IRS are erroneous. This Offer in Compromise is generally used if a taxpayer was unable to defend himself against an assessment by the IRS, and has now discovered additional evidence to prove that the amount being billed is wrong.
Offers in Compromise that cast doubt as to liability, other than 100% penalties, will be reviewed by the Examination Division of the IRS rather than the Collection Division. In reviewing such Offers in Compromise, the Examination Division will use guidelines similar to those used in making audit determinations. For this kind of Offer in Compromise to be successful, our tax attorneys must establish a valid question of law or fact that would render the liability in question doubtful.
I Can't Pay The Entire Tax!
This is the most common type of Offer in Compromise. Under this type of Offer in Compromise the taxpayer makes a representation that based on the taxpayer's financial condition IRS will not be able to collect the entire tax bill from the taxpayer. This Offer in Compromise requires a detailed review of the taxpayer's financial condition.
The amount of this Offer in Compromise must reflect the amount of the equity in taxpayer's assets plus the amount that the IRS could collect from taxpayer's future income.
Special consideration could be made for taxpayer's advanced age or other special circumstances. Our tax attorneys often point out to the IRS the possibilities that our client is in ill heath and may not survive to pay the entire tax liability in question or that the taxpayer's skill are no longer as well compensated as they have been in previous years. The more special considerations our tax attorneys are able to present regarding each client's financial and personal circumstances, the more likely that the IRS will accept the proposed Offer in Compromise.
It's Just Not Fair To Make Me Pay!
This type of offer requires the taxpayer to explain his exceptional circumstances, showing why requiring the payment of the tax liability in full would either create an economic hardship or would be unfair and inequitable.
The Offer in Compromise program requires that subsequent to acceptance of an Offer in Compromise, the taxpayer must remain current on all tax obligations for a period five (5) years. Therefore, if the taxpayer's Offer in Compromise is accepted and paid in full, but he later fails to pay current income taxes or other taxes, the Offer in Compromise might be revoked by the IRS. The agreement to remain current subsequent to acceptance of an Offer in Compromise creates a condition subsequent to the agreement.