Although it may seem too good to be true, it is possible to resolve your tax liability by paying a fraction of what you owe. An offer in compromise is just that – an agreement between a taxpayer and the IRS or state taxing authority that will settle a balance for less than the full amount owed. There are three valid bases for which you can file an offer in compromise:
- Doubt as to Collectibility: This occurs when there is doubt that a taxpayer will be able to pay the full amount of tax, penalties and interest that is owed. An OIC will not be accepted under this basis if the IRS believes that the taxpayer can pay off the full amount, either in a lump sum or as part of an installment agreement. In addition, the IRS will usually only accept an OIC on this basis if the amount offered by the taxpayer is greater than or equal to the reasonable collection potential (RCP), which is determined by the value of any assets and potential future income minus accepted living expenses.
- Doubt as to Liability: The IRS is not always right. If there is doubt concerning the assessed tax, an OIC may be filed under this basis. Doubt as to liability typically occurs when penalties are assessed even though the taxpayer meets the criteria for non-assertion of penalties. It may also occur if an examiner fails to consider the evidence presented during an audit.
- Effective Tax Administration: This basis for an OIC may still be available even if the amount assessed is correct and the IRS believes the taxpayer has the ability to full pay the liability. If the taxpayer can show that collection of the amount owed would constitute a financial hardship, violate public policy, or create an inequitable or unfair result, this basis can be used to file an OIC.
When an OIC is filed, the IRS or state is not bound by the offer amount or the terms proposed by the taxpayer. A final agreement is only reached through what can be extensive negotiations with the IRS. Glen Frost has extensive experience negotiating with the IRS and state taxing authorities and is well-suited to represent you.