Offer In Compromise: Overview

What are the Common Problems that Arise with an Offer in Compromise?

An Offer in Compromise is an agreement between a taxpayer and the government that settles a tax liability for payment of less than the full amount owed. To achieve a successful Offer in Compromise outcome, a taxpayer has to show that their financial circumstances fit within the IRS Offer in Compromise equation. Deviation from the IRS Offer in Compromise equation will lead to an unreasonably higher settlement amount with the IRS or more likely, no settlement at all.

Why will the IRS Accept an Offer in Compromise?

The IRS, like other creditors, encounters situations where an account receivable cannot be collected in full or there is a legitimate dispute as to what is owed. It is an accepted business practice to resolve these issues through negotiation. The IRS calls this process an Offer in Compromise.

What are 3 Different Types of Offers in Compromise?

The three different types of Offers in Compromise are as follows: The Doubt as to Collectability Offer in Compromise which negotiates down a tax liability whereby a taxpayer cannot afford to full pay the tax that is actually due; the Doubt as to Liability Offer in Compromise which negotiates a tax liability when the amount due is in dispute; the Effective Tax Administration Offer in Compromise which negotiates down a tax liability for taxpayers who have extenuating circumstances such as advanced age or difficult health issues.

Does the IRS Have the Authority not to Consider my Offer in Compromise?

No. Offers in Compromise are Congressionally mandated programs. In most cases, the IRS must consider the viability of an Offer in Compromise. This position is further stated in IRM policy P-5-100.

Under What Circumstances May the IRS Refuse to Even Consider an Offer in Compromise?

The IRS may refuse to consider an Offer in Compromise when it is determined that the Offer in Compromise is submitted solely to delay collection action, or when a taxpayer has filed bankruptcy, or when a taxpayer is under criminal investigation by the Department of Justice, or when a tax liability has been reduced to a federal judgment by the Department of Justice.

Which Divisions of the IRS Examine an Offer in Compromise?

The Collection Division of the IRS examines Offer in Compromise based upon the inability of a taxpayer to full pay the tax. The Examination Division of the IRS examines an Offer in Compromise based upon the assertion that the tax liability assessed by the IRS is incorrect. The Appeals Division of the IRS resolves disputes for both Collection and Examination based Offer in Compromise.

How Long Does it Take for An Offer in Compromise to be Resolved?

From beginning to finish, the expected time to resolve an Offer in Compromise is between 6 to 8 months.

Is there Any Way to Have the Offer in Compromise Process Expedited?

Yes. An Offer in Compromise can be expedited by petitioning to the Taxpayer Advocate Service. This is performed by faxing a 911 form. The contents of the 911 form must explicitly state the reason why normal processing of an Offer in Compromise would cause undue hardship to a taxpayer.

Does an Offer in Compromise Also Resolve Penalties and Interest?

Yes. Penalties and interest attached to a tax are called statutory additions. All statutory additions are settled through an Offer in Compromise along with the underlying tax.