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OFFER IN COMPROMISE OVERVIEW
An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle or "compromise" federal tax liabilities by accepting less than full payment under certain circumstances. A tax debt may be legally compromised under any of the following conditions:
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Doubt as to Collectability - |
doubt exists that the taxpayer would ever be able to pay the full amount of tax owed. |
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Doubt as to Liability - |
doubt exists that the assessed tax is correct. |
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Effective Tax Administration - |
there is no doubt the assessed tax is correct, and there is no doubt that the full amount owed could be collected, but an extraordinary circumstance exists that allows the IRS to consider a taxpayer's OIC. To be eligible for a compromise on this basis, the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable. |
Taxpayers should be aware of false claims that their tax debts can be settled for "pennies on the dollar" through the Offer in Compromise Program. While this is true in some instances, it is imperative that they check the OIC requirements to verify if they qualify to submit an offer in compromise.
The goal of an Offer in Compromise is to settle, reduce and/or eliminate a tax liability that is in both the
Governments and the taxpayer's best interest. The IRS will accept an offer-in-compromise to settle unpaid accounts for less than the amount owed when there is doubt that the liability can be collected in full and the amount you offer reasonably reflects collection potential. In addition to the forms necessary to file an Offer, we include a cover page that describes what forms and substantiation we have included in the package as well as a personal description of the taxpayer which provides the Offer Specialist a depiction that supports our case.
The IRS will also consider doubt as to liability and effective tax administration as acceptable platforms for abatement. The issue of "liability" is a complex legal issue (e.g., whether a person is a "responsible person" to pay the payroll taxes) requiring sophisticated and well-reasoned issues of fact and law.
To submit an offer-in-compromise you must complete Form 656. The IRS will not accept an offer unless you have complied with all current filing requirements.
The IRS will not process an OIC for those working as employees unless all unfiled tax returns are filed, although it is not required that you make payment with the tax returns you file. This means that "employees" need to file all un-filed tax returns if you are considering eliminating your tax liability in an OIC. (IRS.gov)