The Offer in Compromise (OIC) is a program offered by the Internal Revenue Service (IRS) (also offered by the Franchise Tax Board) that allows taxpayers to settle their tax liability for less than what they owe. The IRS is willing to negotiate a settlement with a taxpayer that cannot pay his/her tax liability in full, or doing so would create a financial hardship. The IRS will generally approve an offer in compromise when the amount offered represents the most that they will be able to collect within the statute of limitations provided by law (deadline for the IRS to collect the debt.)
The Offer in Compromise can be based on three grounds: 1) Doubt as to Collectibility, 2) Doubt as to Liability and 3) Effective Tax Administration Offer.
Doubt as to Collectibility is the most common reason why taxpayers file for an Offer in Compromise. Here, the taxpayer argues that there is doubt that the amount owed is fully collectible. Doubt as to collectibility exists in any case where the taxpayer’s assets and income are less than the full amount of the tax liability.
Doubt as to Liability is when the taxpayer has reason to believe the tax is not owed. A compromise meets this only when there is a candid dispute as to the existence or amount of the correct tax debt under the law.
Effective Tax Administration Offer is used when there is no doubt that the tax is legally owed and that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.
The offer in compromise is a very effective program that allows taxpayers to get a fresh start and eliminate their tax debt. However, it only works for those who qualify. There are a series of requirements and qualification criteria that the IRS will take into account before settling any debt.
BEWARE of national tax resolution firms who advertise on TV that they can settle any debt just based on the amount the taxpayer owes. They will often file for an offer in compromise without making proper analysis of a taxpayer’s situation, which frequently results in the denial of the offer.
At Brunoro Law, we carefully examine your tax and financial situation to determine if an Offer in Compromise is the best path for you. We will not recommend filing an Offer in Compromise if we determine that you can pay your liability through a payment plan or other means.
Contact us to schedule a free consultation so we can determine whether an Offer in Compromise is a legitimate option for you.