An IRS Offer in Compromise allows you to cut a deal with the IRS to pay less than what you owe, often for pennies on the dollar. However, not all taxpayers are eligible for an Offer in Compromise. We perform a thorough financial analysis to determine if you are eligible for an Offer in Compromise.
An Offer in Compromise is based upon many different factors including, but not limited to, the taxpayer’s age, health, income, assets and liabilities. All of these items are factored into a mathematical model to determine the taxpayer’s eligibility for an Offer and, if eligible, the amount the IRS may be willing to accept under that Offer. There are different types of Offers in Compromise.
Offers Based Upon Doubt as to Collectibility
Doubt as to Collectibility (“I can never pay the IRS what I owe them.”) – If a taxpayer cannot pay his or her tax liability in full, he or she may be eligible for an Offer in Compromise based upon this ground. We perform a thorough financial analysis to determine whether you are eligible for this type of Offer. If you are eligible, we calculate the dollar amount that the IRS may be willing to accept. This program is a wonderful way to eliminate one’s tax liability for pennies on the dollar.
If you look at the IRS Offer in Compromise Form 656, it looks quite simple to fill out. It seems as if you can simply check a few boxes and file your Offer with the IRS. This approach is the worst possible thing you can do.
Long before filing an Offer in Compromise with the IRS we perform pre-Offer planning for our clients to ensure that they pay the lowest possible amount to the IRS under an accepted Offer in Compromise. For example, we sometimes recommend that our taxpayer move into a nicer home or apartment, attend to existing health issues including dental procedures and medication, purchase health insurance and life insurance and even buy a new car. All of these items can be expenses allowed by the IRS which, in turn, reduces the amount that the IRS may be willing to accept under an Offer in Compromise. Failure to conduct pre-Offer planning often leads a taxpayer to needlessly pay more than they need to the IRS under an accepted Offer in Compromise or to make them ineligible to file an Offer in Compromise. Pre-Offer planning is especially important if you have unfiled tax returns and are married.
Offers Based Upon Doubt as to Liability
Doubt as to Liability (“I don’t owe the IRS what they say I owe them.”) – An Offer in Compromise based upon Doubt as to Liability is used where the amount the IRS is seeking to collect is incorrect. A taxpayer does not need to disclose his or her financial condition to the IRS with this type of Offer.
Offers Based Upon Effective Tax Administration
Effective Tax Administration or Exceptional Circumstances (“I can pay my tax liability but to do so would cause a hardship.”) – When a taxpayer has the ability to pay his or her liability in full, but to do so would cause a significant financial hardship, an Offer in Compromise based upon this ground may be appropriate.
Even though the IRS is authorized to accept an Offer in Compromise based upon Effective Tax Administration or Exceptional Circumstances, in reality, few Offers are accepted based upon this ground. The case study discussed below demonstrates how difficult it is to obtain an Offer based upon Effective Tax Administration or Exceptional Circumstances from the IRS.
Business Offers in Compromise
An Offer in Compromise is typically filed on behalf of individuals. However, an Offer in Compromise can be filed on behalf of a business. Filing an Offer in Compromise on behalf of a business is more difficult because the IRS is institutionally biased against granting an Offer in Compromise for an in-business taxpayer. The IRS feels that granting an Offer in Compromise to an in-business taxpayer gives that business an unfair competitive advantage over the same business down the street that does not have IRS problems. Even though the IRS is biased against granting an Offer in Compromise to an in-business taxpayer, we have successfully negotiated Offers in Compromise for businesses.