What is an “Offer in Compromise” and How Could it Be Important to You?

offer in compromiseWhile most people do not plan things that way, circumstances may leave you with an overwhelming tax obligation.  One option to relieve the tax burden could be an offer in compromise.


An offer in compromise is an IRS payment plan with strings attached.  The bottom line is that it allows a taxpayer to settle their tax liability for less than they owe—if they are eligible.  Here are basic points about qualifying for an offer in compromise (OIC):


  • A taxpayer must be up to date on current tax obligations, including annual taxes and payments and deposits on estimated upcoming business taxes.
  • The reasonable collection potential (RCP) of a debt comes into play as the IRS considers an offer in compromise. This means the IRS looks at the amount of money offered in repayment against the ability of the taxpayer to pay the debt.  This takes into consideration wages, financial accounts, property, and other value that could be used to pay down or pay off a tax liability.  The IRS is unlikely to accept a reduced sum on a tax debt that could be collected for full value.
  • Individuals who are pursuing or participating in a bankruptcy proceeding are not eligible for an OIC.


These are good benchmarks for determining eligibility, but it is important to seek guidance from an experienced tax attorney to assess whether it is a good idea for your financial circumstances.   An important question for the IRS is the reasoning behind an offer. 


According to the IRS, the agency can accept an Offer In Compromise for three reasons:


  1. If there is some doubt about whether a debt is owed, and how much that debt could be, the IRS may consider an OIC. When there is a “genuine dispute” as to the tax liability, the IRS may be amenable to your offer.  This option largely does not exist for those whose reasoning is an earnest insistence that they do not have to pay taxes.
  2. If a tax liability is established, as well as an ability to pay the liability, the IRS may accept an OIC owing to “effective tax administration.” This is the idea that OIC is possible if there are unique circumstances or payment of the tax debt would cause exceptional hardship.
  3. The third reason the IRS may accept an OIC is if the full amount owed is more than the taxpayer earns and owns.


In the absence of allegations of a criminal tax matter, or tax fraud, an OIC could be a good option for taxpayers overwhelmed by a tax liability.  Speak with a reputable tax attorney to learn about options that are right for your situation.


Experienced counsel from skilled tax lawyers in Chicago


At Robert J. Fedor, Esq., LLC we provide confidential, appropriate legal solutions to persons notified of an IRS audit, tax crime, or other tax controversy.  With offices in Chicago and Cleveland, we serve clients and companies around the world.  Contact us or call 800-579-0997 today.

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