Tax Controversy & Resolution: IRS Offer-In-Compromise

What is an IRS Offer-In-Compromise?

If your financial situation is desperate with very limited resources, another option available includes an Offer in Compromise. Essentially, this is an attempt by the IRS to receive whatever income and/or assets available from the taxpayer to offset the outstanding tax liability, and to close out the investigation to avoid further IRS operational costs when attempting to collect by a highly insolvent taxpayer. Regardless of the reason, to be eligible for an Offer in Compromise the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable.

There are three categories under which the IRS accepts Offer-in-Compromise requests:

  • (1) Doubt as to Liability:

    • The amount of tax assessed is incorrect.

  • (2) Doubt as to Collectability:

    • As most often utilized, the taxpayer filing under this category must demonstrate they will likely never be able to pay the full tax obligation due to financial hardship or some other persuasive argument.

  • (3) Effective Tax Administration:

    • Requests for relief under this category does not dispute the amount of the tax. Instead, the claim communicates to the IRS that collecting the tax would create an injustice to the taxpayer. For example, elderly or disabled taxpayers often use this category based on their specific situation.

Historically, an Offer-in-Compromise required cumbersome paperwork and extensive delays while the IRS processed such requests. However, in 2011, the Fresh Start program was implemented by the IRS which provides additional relief and a more streamlined process under certain conditions. To request an Offer-in-Compromise, file Form 656: Offer-in-Compromise and Form 656-A: Income Certification for Offer-in-Compromise Application Fee and Payment. 

Offer-in-Compromises generally have a very selective acceptance rate. However, AndreTaxCo is here to help improve your chances of success when applying for an Offer-in-Compromise and help resolve your tax issue efficiently.

See IRS Link for additional background: About Form 656, Offer in Compromise.

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