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An IRS offer in compromise is an agreement between a taxpayer and the Internal Revenue Service (IRS) that resolves a taxpayer's tax liability. The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances. The IRS may legally compromise for one of the following reasons:

  • Doubt as to Liability Offer in Compromise: Doubt exists that the assessed tax is correct.

  • Doubt as to Collectibility Offer in Compromise: Doubt exists that the taxpayer could ever pay the full amount of tax owed. The minimum offer amount must generally be equal to (or greater than) the taxpayer's reasonable collection potential (RCP). The RCP is defined as the total of the taxpayer's realizable value in real and personal assets, plus his/her future income.

Unless the taxpayer files an offer in compromise claiming special circumstances, the offered amount must equal or exceed the reasonable collection potential. Realizable value is the asset's quick sale value (amount which could be reasonably expected through the sale of the asset) minus what the taxpayer owes to a secured creditor.

  • Effective Tax Administration Offer in Compromise: There is no doubt that the tax is correct and no doubt that the amount owed could be collected in full, but exceptional circumstances exist such that collection of the full amount would create economic hardship or where compelling public policy or equity considerations provide sufficient basis for compromise.  The taxpayer bears the burden of proof to show their offer in compromise qualifies for public policy or equity considerations.  They must show that their circumstances are compelling enough to justify acceptance of their offer in compromise compared to other taxpayers in similar circumstances.     

Offer in Compromise and IRS Policy:

 Policy Statement P-5-100 states:

The Service will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An offer in compromise is a legitimate alternative to declaring a case currently not collectible or to a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government. The Toll Free Number for an Offer in Compromise is 1-866-482-9707.

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Some links and information are provided. However, a  tax professional, who routinely deals with IRS collection matters and Offers in Compromise, should be consulted before any action is taken.



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