Irs Offer And Compromise

How IRS Offer And Compromise Works To Reduce Tax Debt

IRS offer and compromise, or more properly IRS offer in compromise, is a program instigated by the IRS to attempt to gain a partial settlement on an existing unpaid tax debt. The program is designed to get the maximum amount of money which the IRS can hope to obtain, while at the same time paving the way for future compliance on behalf of the individual who benefits from the system. The program is available to all taxpayers, but in practice it tends to be limited to people with special needs such as the disabled and elderly.

There are certain conditions which must be met before an individual has any chance to put their case for a reduced settlement. These are obviously in place to prevent an abuse of the system, and to discourage anyone with financial difficulties from attempting to gain a reduced settlement on their tax bill. The first possible condition is where there is a genuine doubt as to the accuracy of the alleged liability. If a taxpayer can demonstrate that there is a genuine doubt, they can apply for a reduced settlement under this program.

The most common reason for an application under IRS offer in compromise is that of a doubt as to whether the tax debt will be collectible. In cases where the income and assets of the taxpayer are clearly inadequate to make full settlement of the tax debt, there is no purpose in the IRS wasting further public money trying to collect what does not exist. There is a formula which the IRS uses to determine a reasonable settlement figure in these cases.

This formula takes into account both the disposable income and the assets of the taxpayer. Assets are included in full, meaning that the taxpayer is not entitled to keep any part of them. Any equity in any real estate or other assets must be realized in full, meaning in most cases that the asset will need to be sold. The formula for disposable income is to multiply it by 48, so two years' worth of all of the income which is left after essential bills are met.

The final clause in the IRS offer and compromise program is a catch all clause which will take in any other appropriate situation. This simply says that the program is available where full collection of the income tax would "create an economic hardship or would be unfair and inequitable.” To be considered for the program, you need to fill out a form which is the same for wage earners and the self employed. You also need to pay a fee and make an immediate 20% settlement. In cases of extreme hardship, however, the fee can be waived, and the applicant will still be considered for IRS offer and compromise.

 

 

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