Offer In Compromise: Does It Always Work To Your Advantage?

You may hear of a program offered by the IRS to taxpayers who are having difficulties in paying their tax obligations. Offer In Compromise is a program that allows taxpayers to pay a lesser amount than the original amount of tax owed. It helps settle their back taxes and tax debt, start over fresh, and be able to keep up with their taxes for the next following tax season. It sounds like a good deal, right? You just have to submit a few forms to the IRS and then you’ll have the possibility of substantial tax reduction right away. However, Offer in Compromise will sometimes depend on your financial situation and unless you qualify to the three categories found in Form 656 of the offer in compromise IRS package, you may not be able to take advantage of this program.


Do You Qualify?

Let us find out if you qualify for an offer in compromise by checking out the following categories and see if you fall into any of them.

• Doubt as to liability. The IRS can only accept a compromise if you do have a significant amount of tax owed. There should be a real existence of the tax debt before a compromise is given according to the law.

• Doubt as to collectibility. If there is really no way for the taxpayer to pay his debt or there is no chance of collecting the debt fully, you are eligible to offer a compromise. This happens when the taxpayer’s assets and income are lesser than the total amount of tax debt.

• Effective Tax Administration. The IRS may accept a compromised base on effective tax administration. If the tax owed does exist and the full amount can be collected but would only cause further hardships to the taxpayer, an offer in compromise can be accepted. 

Is Offer In Compromise Always Accepted?

For the year 2008, IRS recorded to have received about 48,000 offers in compromise but only accepted 11,000 of them. There is no assurance that your offer will be accepted based on the many repeat offers by taxpayers since 2000 which has continued to increase over the years. However, you can submit another offer if it was returned and not rejected. Usually, the reason why an OIC is returned is that the necessary information submitted was incomplete, a bankruptcy is filed, an application fee wasn’t included to the filing, the required tax returns wasn’t filed, or this is a current tax liability while IRS is reviewing the offer.

Disadvantages In Using Offer In Compromise

This is where we find out if Offer in Compromise does work to your advantage. Aside from the obvious advantage which is the chance to pay for a lesser tax liability, you also have to consider the disadvantages that come with it such as the following:

• IRS Strict Requirements. You will be required to show proper documentation of your very low monthly income and assets. Their total should be lesser than your overall tax debt. You cannot take advantage of the program without this specific requirement.

• It’s Just Temporary. The IRS is prevented to collect taxes from you after 10 years according to the Collection Statute Expiration Date. It might not be best to do an Offer in Compromise if you have an older tax liability since your CESD is about to expire.

• Consistent Payments For Five Years. You should not fail to pay your tax for the first five years once your offer in compromise is accepted. This can be hard to do especially if you’re still trying to get back on your feet after many difficult years. 

It can be confusing and scary to deal with the process alone which is why it is best to find a trusted Tax Preparer who is well knowledgeable and experienced about the in and outs of the IRS tax system. They will be able to help you submit the right documentation and increase the chance of having your settlement offer accepted. Once you find the right tax expert, you no longer have to deal with the complicated rules and regulations of the IRS and you can expect the best possible results for your tax problems.