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Offer in Compromise - Reduce Your Tax Liability To The IRS Through An Offer In Compromise

1. The IRS may legally compromise a tax liability owed based on "Doubt as to Collectibility", and/or "Doubt as to Liability". Additionally, although there is no doubt the tax is correct, and no doubt the amount owed could be collected, exceptional circumstances may allow the IRS to still consider an offer (Effective Tax Administration). Generally, the IRS will not accept an offer unless all of your tax returns have been filed.

2.  "Doubt as to Collectibility" exists when there is doubt that you could ever pay the full amount of tax owed. Financial information must be provided to the IRS describing in detail why the Service cannot collect more than offered from your assets and present and future income. A factor considered is that the IRS generally has 10 years to collect the liability.

3.  "Doubt as to Liability" deals with doubt as to whether you owe the amount of tax assessed. If there is doubt as to liability, you must submit a written statement describing in detail why you do not believe you owe the liability. Financial information is not required if you are submitting an offer on this basis alone. The IRS cannot accept a compromise where the liability has already been decided by a court.

4.   "Effective Tax Administration" - to be eligible for compromise on this basis, you must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable. Financial information is required when submitting an offer on this basis. 

5.  Submitting an offer does not automatically suspend collection activity. However, there are actions that can be taken to suspend collection if collection would result in a financial hardship. Further, merely submitting an offer serves to extend the statute of limitations on collection (i.e., the period of time that the IRS can pursue you for the tax (generally, ten (10) years). Thus, the statute of limitations must be reviewed before an offer is submitted (together with other factors which may have served to extend the statute).

6.  The ultimate goal of an offer-in-compromise is a settlement that is in the Government's and taxpayer's best interest.

7.  An offer based upon "Doubt as to Collectibility"  requires you to submit information on your assets and liabilities, in addition to information regarding your monthly income and expenses. If the offer is not accepted, the financial information can serve as a road map to IRS seizure (e.g., levy) in the future. However, in order to have such offer considered, such information is required. Thus, you want to make sure that the information is prepared by a professional who can advise you on the prospects of acceptance / rejection. The forms should be reviewed by a trained professional (who works IRS collection cases and offers), before submission to the IRS. 

8.  Generally, the amount of the offer (e.g., Doubt as to Collectibility) should be the "realizable value" of your assets, plus the amount the IRS could collect in the future. In determining the future collection factor, the method by which you proposed to pay off your offer is another variable (e.g., Cash Offer; Short-Term Deferred Payment Offer; Deferred Payment Offer). Thus, when reviewing such an offer, the IRS considers such factors as:

  • The amount collectible from your assets.

  • The amount collectible from present and future income. The IRS will consider the present value of money in relation to future collection potential. In other words, by accepting the offer, the IRS will get money that is worth more today than in the future.

  • The amount collectible from 3rd parties.

  • Sources of funds that are available to you but not subject to the IRS's collection action.

9.   Although the IRS encourages deposits, such isn't required.

10. If the IRS accepts your offer, you must indicate the time period for paying the offered amount. For example: Cash Offer; Short-Term Deferred Payment Offer; or Deferred Payment Offer.

11. If your offer is rejected, the rejection can be appealed.  

The above limited information is intended for informational purposes only.  If legal advice or other expert assistance is required, the services of a competent professional should be sought, and this general information should not be relied upon without such professional assistance. 

For assistance, please contact A. Nathan Zeliff, Attorney at Law

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