Understanding The Offer In Compromise Application

The IRS is willing to settle tax debt for an amount less than what is owed

. Often tax firms advertise that you can settle your taxes for "pennies on the dollar." They're referring to the IRS' offer-in-compromise program. The "offer" is made by the taxpayer as a compromise to the tax debt that the taxpayer owes.

The IRS will accept your offer for debt settlement when the IRS believes it is unlikely that (i) the IRS can collect the tax liability in full and (ii) the amount offered by the taxpayer reasonably reflects collection potential.

There are two prerequisites to qualify for the offer in compromise. First, the tax liability must be assessed. Second, there must be doubt as to liability, doubt as to collectibility, both, or a compromise that would promote effective tax administration.

Doubt as to collectibility means the IRS considers it unlikely that it will be able to collect the taxes you owe. Doubt as to liability means that you believe that the IRS made a mistake in calculating the amount of tax you owe. Finally, effective tax administration means that the IRS believes that full collection will create economic hardship or be unfair or unreasonable. Usually, to show that the collection is unfair or unreasonable, the taxpayer must identify compelling public policy or equity considerations, such as exceptional circumstances that exist so that collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner.

Applying for the offer in compromise can be a lengthy process, as it usually requires disclosure of your income and expense and your assets and liabilities. Taxpayers who would like to learn more about settling their tax debt, are encouraged to contact a tax professional. The reward for successfully qualifying for an offer in compromise can be significant, indeed.

by: Michael Smith.

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