January 27, 2010 - William L. Henry IV
An offer in compromise is an agreement between the IRS and the taxpayer to settle a debt for less than full payment. An offer in compromise must be in the best interest of the IRS and the taxpayer. The IRS can compromise a debt based on one of the following reasons:
- Doubt as to Liability: there is doubt that the assessed tax is correct.
- Doubt as to Collectability: the IRS cannot collect the amount owed (from assets or income).
- Effective Tax Administration: the collection of the tax would create an economic hardship or would be unfair or inequitable.
Beware of unscrupulous tax promoters promising debt reduction of "pennies on the dollar" or other unrealistic results. Submitting frivolous offers in compromise can be expensive and make you appear dishonest before the IRS agent making him or her less likely to work with you towards an acceptable solution.
An offer in compromise program has stringent requirements that must be met before the IRS will accept your offer. Only by understanding the facts of your case can a tax attorney or other tax professional determine if an offer in compromise is possible in your situation.
For example, an offer in compromise may not be the best solution for your tax situation. For example, a pending offer in compromise will suspend the period for assessment and collections (statute of limitations). So, if the period for collections would have run out, you may be giving the IRS more time to collect the tax while the offer is pending. Additionally, the tax debt may be completely dischargeable in bankruptcy, which may be the better solution for your tax problems. Finally, by signing an offer in compromise, you give up your right to contest the liability in court.
An offer in compromise may appear relatively simply on its face; however, it is a legal argument that the IRS will only accept if your case meets the criteria established by law. Contact your tax lawyer to determine if an offer in compromise is the best solution for you.
Our tax attorneys can evaluate and discuss if an offer in compromise is the best solution for your tax problems. Our tax attorneys can meet with you in person throughout the front range in Castle Rock, Denver, and Colorado Springs. Initial consultations on tax matters are complimentary.