What is an Offer in Compromise
Internal Revenue Code authorizes the IRS, to accept and Offer in Compromise for 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.
Prior to 1992 the IRS has been reluctant accept Offers in Compromise. In February of 1992, the IRS announced new procedures for settling back taxes through the IRS Offer in Compromise Program. The new procedures greatly liberalized the Offer in Compromise process and increased the likelihood that financially distressed taxpayers would be able to settle their liabilities for less than the full amount through the Offer in Compromise Process.
The IRS will accept an Offer in Compromise when it is unlikely that the tax liability can be collected in full, and the amount of the Offer in Compromise reasonably reflects collection potential. An Offer in Compromise is a legitimate alternative to declaring a case as currently not collectible, or to a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the government.
An Offer in Compromise is an agreement between taxpayer and the IRS that resolves the taxpayers tax bill for a lower amount. If you qualify for an Offer in Compromise, your tax problem can be settled for pennies on the dollar.
The IRS has the authority to settle or compromise federal tax liabilities by accepting less than full amount under certain circumstances. One of the following factors must be established in order for the IRS to accept an Offer in Compromise and settle the liability:
- The taxpayer cannot pay off the liability;
- There is doubt that the taxpayer actually owes the liability;
- The settlement would promote effective tax administration
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.