Offer in Compromise: Settling Taxes For a Fraction
The IRS has a program called the Offer in Compromise that allows the IRS to compromise outstanding tax liabilities with a financially burdened tax payer for often less than the amount they owe to the Federal government. When the IRS accepts an Offer in Compromise they allow the taxpayer to pay what they can afford and the remaining balance is wiped clean. The tax payer is then said to be in good standing with the IRS again. Realize, that most Offer In Compromise requests are rejected by the IRS.
The IRS sometimes allows individuals to settle their taxes owed for less (although it is rare) because in certain circumstances they stand to collect more from a taxpayer by having them pay a fraction of what they owe as opposed through enforced IRS collections. In other words, the IRS will only accept an Offer in Compromise if they feel that your offer is equal to or greater than the amount they would ever collect from you, even if they used forced collection mechanisms. This is based on the concept of a taxpayers Reasonable Collection Potential. In February 2012, the IRS stated it “has more flexibility with financial analysis for determining reasonable collection potential for distressed taxpayers.” This has resulted in a dramatic increase in the OIC acceptance rate as stated by cleanslatetax.com.
The IRS only allows individuals that meet specific requirements to compromise their taxes through the the OIC program. There are three different types of circumstances in which a taxpayer will be considered for an Offer in Compromise.
Filing for an Offer in Compromise requires an extensive amount of documentation. All required documents must be filed in order for your filing to even be considered.
The IRS allows three different ways to pay for your settlement once the OIC has been accepted. You can choose from the three different methods depending upon your current financial situation.
Answers to the most common questions regarding the Offer in Compromise program with the IRS.
Understand how to appeal an Offer in Compromise and understand some reasons why an OIC could be rejected.
Our tax partners will prepare all documents necessary to negotiate for a settlement with the IRS that is less than the total amount that you currently owe.