IRS Offer in Compromise
Is it possible to fully and completely eliminate back taxes, penalties, and interest at a discount?
Yes. The Internal Revenue Service can reduce the amount that a taxpayer owes through a program known as the IRS Offer in Compromise (OIC).
An offer in compromise is an agreement between the taxpayer and the IRS that settles a tax liability for less than the full amount owed. The IRS has a limited time period, 10 years, to collect a tax liability. If it appears that the IRS will not be able to collect the tax owed during that time period, then the IRS can accept an offer in compromise. The amount a taxpayer offers must equal the amount that the IRS can collect from the taxpayer’s equity in assets and disposable monthly income. This is known as the “reasonable collection potential.”
Individuals and businesses may qualify for an IRS Offer in Compromise (OIC) when there is:
- Doubt as to collectability;
- Doubt as to liability; or
- Effective tax administration
Doubt as to Collectability
When your reason for submitting an offer is “doubt as to collectability,” you are telling the IRS that you have insufficient assets and income to pay the full amount. You must prove that you could never pay the full amount of tax owed. Generally, before the IRS can consider a doubt as to collectability offer, the taxpayer must not be able to pay the taxes in full either by liquidating assets or through an installment agreement.
Doubt as to Liability
Grounds for an Offer in Compromise may exist when you are claiming that the assessed tax liability is incorrect. Legitimate doubt exists if you qualify for innocent spouse relief, you did not appeal a tax agent’s incorrect assessment, or the IRS prepared an inaccurate tax return. The goal is to prove to the IRS that you are not legally responsible for the tax.
Effective Tax Administration
An Effective Tax Administration (ETA) offer is made when you agree with the amount of taxes owed and have sufficient assets to pay the full amount, but because of an exceptional circumstance, requiring full payment would cause an economic hardship or would be unfair. If you are requesting an ETA offer, you must submit a collection information statement, and a written narrative explaining your special circumstances, and how payment of the full would create an economic hardship or be unfair.
Hiring a Tax Professional can Greatly Enhance your Odds and Save you Money
Due to lack of experience dealing with the IRS, some taxpayers offer too much. The key is to determine the least amount that the IRS will accept before you make the offer. Despite the mass media suggesting otherwise, an Offer in Compromise has a low chance of success. In 2010, only 20% of Offers were accepted. The reason why we have a high acceptance rate is because we do not submit an Offer in Compromise unless you are a viable candidate. An Offer in Compromise is not for everyone and can actually have adverse consequences. Filing an Offer in Compromise extends the statute of limitations on collections and can extend the statute of limitations period on assessment when attempting to discharge a tax through bankruptcy. At the Law Officer of Todd S. Unger, Esq., LLC, our analysis does not start with the Offer in Compromise; rather, we take a holistic approach and determine the best course of action.
Contact Us to Learn More About IRS Offer in Compromise
Todd S. Unger, Esq., provides consultations to help assess taxpayers facing audits and other federal tax controversy matters in both New Jersey and New York. To schedule your confidential consultation with a qualified New Jersey tax attorney, call us today at (877) 544-4743.