Offer in Compromise

If you will be unable to fully pay your tax debt with the IRS, then the IRS may be willing to consider an offer in compromise. This tax resolution method is a way for taxpayers who owe taxes to pay less than they actually owe. This can be a good option if your income and your equity in assets do not make it possible to fully pay your taxes. For more information about how an offer in compromise works and whether you qualify, read more below.

What Is an Offer in Compromise?

An offer in compromise is a way to settle your tax debt with the IRS for less than the full amount that is owed. It’s an alternative way for you to settle your tax debt with the IRS without paying interest or penalties.

While it’s called “compromise,” this term can mean different things to different people, and it does not necessarily mean that the taxpayer walks away for free. In fact, there are some conditions that must be met before the IRS accepts any offer. In order to qualify for an offer in compromise, you need to meet these requirements:

If you qualify, you may be allowed to pay only a portion of your tax liability. Your payment would be based on how much income you have above basic living expenses and how much equity you have in assets.

Types of Offers In Compromise

There are three main situations in which the IRS is likely to agree to an offer in compromise with a taxpayer, including:

Doubt As To Collectibility Offer In Compromise

This situation typically occurs when the IRS determines that there is no reasonable likelihood of collecting on your tax liability. In considering whether or not you have sufficient funds to repay your debt, the IRS will assess your income and assets and, if your tax debt exceeds your assets and income above basic living expenses, may be willing to accept an offer in compromise.

Doubt As To Liability Offer in Compromise

In some cases, the IRS may determine that you do not owe any taxes at all. If the IRS makes such a determination, then they would only require you to pay the amount of taxes you actually owe which may be a substantial reduction or almost nothing at all.

Effective Tax Administration Offer in Compromise

The final type of offer in compromise involves situations where the IRS believes that paying off your entire tax bill would cause more harm than good. The IRS considers factors like your financial condition, current expenses, and other debts, such as medical debt.

For example if you owe $200,000 in axes and you have $200,000 in cash in the bank, the IRS may consider allowing you to keep your $200,000 if you need it all to pay for life-saving cancer treatments.

Who Qualifies for Offer in Compromise with the IRS?

Anyone who owes back taxes can file an offer in compromise. To determine if an offer in compromise is the best solution for you, it’s important to contact a qualified and experienced tax professional.

What Happens if You Accept an Offer in Compromise?

Once you’ve filed your offer in compromise, you will receive notification by mail about its acceptance. The IRS will send you a letter stating that your offer was accepted. They will also tell you how much money you have to pay towards your tax debt to get relieved from the rest of it.

Following the acceptance of your offer in compromise, it is imperative that for 5 years you file all of your tax returns on time and you do not incur any additional tax debt. Otherwise, your offer in compromise would be defaulted and you would once again owe the total amount owed before, plus all the additional penalties and interest that have accumulated in the time between the acceptance and the default.

How an Experienced Tax Lawyer Can Help with Offers in Compromise

Taxes can be confusing, but they don’t have to be. The best way to navigate your taxes is to hire a tax lawyer who has experience in dealing with IRS issues and can help you understand how it all works.

At JD Tax Law, we are a full-service tax law firm with a proven track record of success. We represent individual and business taxpayers in all aspects of tax resolution, including negotiating Offers in Compromise. Our team has over 15 years of experience dealing with the IRS, and we have successfully resolved countless tax issues and provided relief for hundreds of clients.

To get a tax resolution plan that is tailored to your specific tax situation, please contact us for a free, no-obligation consultation.
Schedule a time that works best for you, or just give us a call now!