Good & Bad Parts about Offer in Compromise
The Good Part About Offers In Compromise
In our experience, IRS' Offer in Compromise program is on of the best tax resolution tools available to taxpayers. The Offer in Compromise program allows taxpayers to settle delinquent IRS taxes for less, or often much less than you owe (or what the government claims you owe).
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.
A successful Offer in Compromise can provide significant benefits to the taxpayer. The key benefits of an Offer in Compromise are:
- Offer in Compromise presents an end to a long and intimidating financial problem;
- The IRS will hold collections while the Offer in Compromise is being considered;
- Taxpayer is able to pay a reduced Offer in Compromise amount compared to what was owed;
- Tax liens will be released once the o Offer in Compromise is completed;
- Offer in Compromise allows the taxpayer to stay out of bankruptcy, and even reduce taxes that would not have been dischargeable in bankruptcy;
The Bad Part About Offers In Compromise
The Offer in Compromise process also has some negative aspects. The key negative features of making an Offer in Compromise are as follows:
- The taxpayer must make a full financial disclosure to the government (this mainly pertains to Offer in Compromise based on doubt to collectibility);
- The taxpayer will have to waive certain tax benefits if Offer in Compromise is accepted;
- A federal Offer in Compromise does not resolve state taxes or any other debts;
- The taxpayer agrees to comply with all federal tax laws for the next five years following an acceptance of his Offer in Compromise;
- The taxpayer waives certain refunds and credits;
- All accepted Offers in Compromise are kept on public file in the District Office for at least one year
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.