Taxation & Estate Planning

What is an Offer In Compromise

By Darrin Mish

An Offer in Compromise is aimed at collecting as much taxes as a taxpayer is reasonably able to pay immediately rather than waste more time and money in attempting to retrieve the full tax amount and potentially be unsuccessful at it. This program allows anyone who owes back taxes to the IRS to offer a compromise, or an amount that they can pay right now that will wipe the slate clean and get you back on the road to financial solvency. The Offer in Compromise is granted on an individual merit basis. Therefore, someone else's successful application may not be typical of your application.

Your eligibility for an Offer in Compromise depends on your RCP or Reasonable Collection Potential which basically refers to how much the IRS can reasonably expect to collect from you. The IRS will examine your entire financial position and make a ruling that says what is reasonable to collect from you at this time. The IRS will not accept any offer that is less than the RCP they assess.

There are 3 types of Offers in Compromise. The first is known as a Doubt as to Collectability. This type means that it is highly unlikely that you will be able to fully settle your tax debt before your due date. For example, if you need to pay $10,000 of taxes within the next 2 months but your monthly salary is only $4,000 per month, obviously, you would not be able to meet your obligations in the time remaining.

The second type of Offer in Compromise is called Doubt of Liability. This means that there is a doubt, no matter how small, that the amount of money you owe is not correct. The doubt may be about whether you actually owe the tax that is attributed to you (or does someone else owe it). Alternatively, it may be a doubt over the accuracy of the quantum of tax. Regardless of the reason, if you can show that you are not legally responsible for the money you owe or that its calculation is erroneous, you can offer a compromise that correctly reflects what you actually owe.

The final compromise is the Hardship category that many people fall into. This means that the complete collection of your total debt would create an economic hardship that you and your family may not recover from, in which case you can make an Offer in Compromise and the IRS is likely to approve of it.

To find out more about the Offer in Compromise, you should consult a tax attorney. He or she will explain in greater detail and will give you a URL so you can print out the forms you need to fill out to apply for the compromise.

What is an Offer In Compromise is a post from: IRS Tax Problem Solver Blog - IRS Help

Full post as published by IRS Problem Solver Blog on January 29, 2010 (boomark / email).