Offer in compromise. What is it and how does it work?
What is Offer in compromise?
Offer in compromise represents a program established by the Internal Revenue Service (IRS) for taxpayers who are not able to pay the taxes they owe, or for taxpayers for whom it would create a financial hardship to pay the taxes they owe. An offer in compromise enables payers to settle their tax bill for less than the full amount owed.
When it comes to deciding wheter to enable a taxpayer to settle his bill with an offer in compromise, the taxpayer’s circumstances will be taken in consideration by the IRS. These circumstances may include their posibility to pay, income, assets they might own and expenses.
Offer in Compromises usually represents one of the best choices for tax debtors, due to the fact that it is one of the most lenient ways to decrease the amount of debt youmight have to acquit, rather than just acquiting the full amount with installment plans.
How can you get an offer in compromise?
In order to be eligible to get an offer in compromise, you have to work with the IRS and demonstrate that what you are able to offer represents the most they can obtain within the course of an equitable period of time.
When it comes to the kinds of offer in compromise you can get, there are three of them:
- Doubt as to collectability: Taking into consideration the fact that this is the most common one, it appeals to people who are unfit to pay their complete liabilities.
- Doubt as to Liability: This applies to people who believe that they do not, in actuality, owe the amount that is pinned on them.
- Effective Tax Administration: This one is for people who are able afford paying their debts, but this will results in a dreadful financial state if they do so.
The IRS is going to agree with an offer in compromise only if they are sure that your financial state is improper and you might actually be unfit to pay your debts. As mentioned before, they will take into consideration the assets you might possess and if they reach the conclusion that you may be unable to acquit the amount that you owe in delinquent taxes before the statute of limitations expires, they will be prepared to settle for an agreement with you. This agreement is based on what you are able to afford, and most of the times this concludes with people acquiting much less than what they owe in tax liabilities to the IRS.
The IRS will not accept an offer in compromise for a taxpayer who:
- Owns unfiled tax returns
- Owns a history of not paying their taxes
- Has been known for intentionally avoiding paying their taxes
- Is known as being a tax protester
- Is in an open bankruptcy proceeding (or owns a business in an open bankruptcy proceeding)
- Had their tax liabilities questioned by the Department of Justice