Offer in Compromise

If you owe taxes but cannot pay your tax bill, the Internal Revenue Service (the “IRS”) provides options that may help. One of these payment alternatives is the IRS Offer in Compromise (OIC) program which lets eligible individual and business taxpayers settle their tax debt for less than the amount owed. Obtaining an Offer in Compromise is not easy. An Offer in Compromise requires revealing extensive financial information to establish what you can afford to pay. Our attorneys can evaluate whether you qualify and how much to offer the IRS and help you present a strong case to justify your need for tax relief.

Grounds for an Offer in Compromise

To qualify for an Offer in Compromise, you must demonstrate that your case falls into one of these categories:

1. Doubt as to liability. You believe you do not owe the tax and can establish a genuine dispute as to your liability. For example, your identity was stolen or you are an innocent spouse who was not aware of your spouse’s tax debt.
2. Doubt as to collectability. You admit you owe the debt but your assets and income are less than what you owe and will continue to be less than what you owe for a reasonable period of time in the future.
3. Effective tax administration. Generally, this applies if paying your tax bill would leave you destitute or if there are public policy or fairness considerations in collecting the debt. For example, you are in poor health, disabled, or elderly. It is a hard standard to meet.

You must provide detailed financial records to the IRS under the latter two categories. Note that if you have equity in assets that can be used to pay your debt or you can afford to pay your taxes over time through an installment agreement, you will not qualify for an Offer in Compromise in most cases.

Offer Amount

Establishing eligibility for an Offer in Compromise and determining a proper offer amount are both heavily dependent on your supporting documentation. Your offer must consider your assets, liabilities, income, expenses, and future earning potential as demonstrated by your financials.

The IRS will not accept an offer unless it reflects what it would reasonably be able to collect from you over the next few years. Regarding your expenses, the IRS will only consider reasonable living expenses and sets certain standards. Private school tuition, college expenses, charitable contributions, and other expenses may not be included in the calculation.

Acceptance of an Offer in Compromise

If your offer is accepted, you must pay the offer amount in a lump sum or installments. You must file your tax return and pay all taxes owed on time for the next five years. If you fail to do so, your Offer in Compromise may default and you may be liable for the original tax debt.

Rejection of an Offer in Compromise

If your offer is rejected, you can appeal the denial to the Independent Office of Appeals. If that does not resolve the matter, you may appeal to Tax Court if necessary.

How We Help

Being accepted for an Offer in Compromise can have a huge impact on your life and business, enabling you to get your finances in order. Having a knowledgeable tax attorney guide you through the Offer in Compromise process can significantly help your case. The IRS will consider your unique facts and circumstances in determining what you can afford. We understand what information the IRS needs and can help explain any special circumstances affecting your ability to pay so you qualify for an Offer in Compromise that resolves your tax problems for good.

If you are struggling with paying your taxes, contact us for a consultation.