Past Due IRS Taxes – Offer In Compromise

     You may have seen the commercials on TV for an Offer in Compromise with the Internal Revenue Service (IRS) and wondered what exactly is it?  If you are unable to pay your Federal tax bill in full and an installment plan is not going to work, you may be able to utilize an Offer in Compromise (OIC).  Usually, an OIC is generally viewed as a last resort after you have explored all of their available payment options.  The IRS only resolves less than one percent of all tax balances owed through this type of program.  I know the commercials make it seem like anyone can do it.  The chances of being able to work this option out with the IRS are small however.

     So what is an OIC exactly?  It is an agreement between the IRS and you, the taxpayer, which resolves your tax debt that you owe.  The Internal Revenue Service has the authority to negotiate or compromise a federal tax liability by taking less than the full tax payment that is due.  This will only be granted under certain circumstances.  A tax bill can be legally compromised for one of the following reasons:

     1.  Doubt as to collectability: If there is doubt that you could ever pay the amount back in your lifetime, the IRS will consider settling for less.  Be aware that what you think and what the IRS thinks can be very different.  So even if you are granted an OIC, you still may have a large bill to pay back.

     2.  Doubt as to liability: If doubt exists that the tax assessed is correct.  Yes the IRS can make mistakes and be unclear as to what a tax position you might fall under.  In this instance they will look at lowering the amount that you would have to pay back.

     3.  Effective Tax Administration: When there is no doubt that the tax is correct and could be collected, but an extraordinary situation exists that allows the IRS to consider an OIC for you.  To be considered for a compromise on this basis, you must be able to demonstrate that collection of the tax would create a financial hardship or would be unfair or inequitable.

     If the compromise is granted, the IRS will issue a revised Form 656, which is a revision on what taxes you owe.  You may also get a Form 656 – L, which would assert that there is some doubt to liability when it is believed that the tax liability is correct.  You are not allowed to file offers concurrently for claiming that both the tax liability is incorrect along with no ability to ever pay it off.

     Form 656 also incorporates changes in the processing guidelines as the Internal Revenue Service will no longer investigate an offer for a tax year or tax period that has not been assessed.  The IRS will return the offer back to you if it is submitted solely for an unassessed tax period or year.

     In conclusion, an Offer in Compromise can save you a lot of money, but they are hard to get. Additionally, you do need to be aware of slick advertising from companies offering pennies on the dollar tax savings.  Be careful not to get caught up too much with paying for this service unless you are very clear yourself of a claim or it could cost you even more money for no results. When it comes to the IRS, pay your taxes when they are due.  The Government has a very long memory and can make your life very difficult for not paying them.