Industry Tips
Offer In Compromise
Offer-In-Compromise
Consumers who have federal and/or state tax liabilities often contract with independent companies, attorneys or CPAs to assist them in resolving issues with the IRS. In most cases, an agreement is signed by the taxpayer and presented to the IRS by the company or individuals representing them.
An Offer-In-Compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service (IRS) that resolves the taxpayer's tax liability. The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances. An OIC may be submitted for all types of taxes, as well as interest and penalties, arising under the Internal Revenue Code
IRS Compromise Objectives are:
- To resolve accounts receivable which cannot be collected in full or on which there is a legitimate dispute as to what is owed.
- To effect collection of what could reasonably be collected at the earliest time possible at the least cost to the government.
- To give taxpayers a fresh start to enable them to voluntarily comply with the tax law.
- To collect funds which may not be collectible through any other means.
The IRS may compromise a civil case only upon one or both of the following grounds:
1 - Doubt as to liability - doubt exists that the assessed tax is correct; or
2 - Doubt as to collect ability - doubt exists that you could ever pay the full amount of tax owed.
3 - Effective Tax Administration - There is no doubt the tax is correct and no doubt that the amount owed could be collected, but an exceptional circumstance exists that allows the IRS to consider your offer. To be eligible for a compromise on this basis, you must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable.
OICs may be rejected for public policy reasons, i.e. if the acceptance of the offer is in any way detrimental to the Government's interests. OICs are also not normally eligible for consideration until you have filed all past due federal tax returns with the IRS; if you are currently in bankruptcy; your financial situation changes; it is a current legal matter; etc.
Taxpayers are expected to provide reasonable documentation to verify their ability to pay. The Revenue office is instructed to consider the taxpayer's assets (which can include 401Ks, stocks, bonds, inheritances, etc.) and present, as well as future, income when reviewing an OIC.
WARNING: If the IRS perceives that an OIC is a delaying tactic and collection is in jeopardy, it may continue collection actions during the OIC procedure.
For further details call an IRS Customer Service Representative at 1-800-829-1040.
