Types Of Offer in Compromise
Offer in Compromise is a settlement for tax debts less than the amount owed. The most common Offer in Compromise type for the IRS is a personal Offer for doubt as to collectibility. For Doubt as to Collectibility, there are both Personal and Business Offers in Compromise. The other less common types of Offer In Compromise are Doubt as To Liability and Exceptional Circumstances.
Doubt as to Collectibility and Doubt as to Liability Offers have a processing fee ($205 as of 2021). The fee is waived if certain financial requirements are met and Doubt as to Liability Offers have no fee.
Watch our video below for more information or keep reading for the written version.
Doubt as to Collectibility Offer in Compromise
Doubt as to Collectibility is the most popular of the different types of Offer in Compromise. The reason is it is by far the easiest to get. Even if there may be a chance at an Effective Tax Administration or Doubt as to Liability Offer, we still have our clients do Doubt as to Collectibility most of the time since it is easier to get.
This type of Offer in Compromise is based on your financial situation. The IRS looks at your “Reasonable Collection Potential.” Your Reasonable Collection Potential is the amount the IRS can expect to collect from you based on the IRS Collection Financial Standards. This looks at your total assets and available income based on the IRS’ calculations. If you have more assets than the total tax debt, it is unlikely you will get this type of Offer in Compromise accepted. If you have a high rent or mortgage, you might not qualify as well.
The same financial analysis applies to both personal and business Offers. Business Offers are harder to get accepted. The rules can get trickier for payroll debts. See our personal Offer in Compromise guide for more information on this type of Offer for individuals. See our business Offer in Compromise page for more information on business Offers.
Exceptional Circumstances Offer in Compromise (AKA Effective Tax Administration)
This type of Offer in Compromise is basically a plea for help when you won’t qualify for a Doubt as to Collectibility Offer in Compromise. You have enough to pay the debt in full. But for some reason, it would cause extreme economic hardship or be unfair for you to pay it.
Sound hard to get? It is. This is the least successful type of Offer in Compromise. The reason better is good for the IRS to forgive the debt when you can fully pay it. If you really have some extraordinary circumstances there is a possibility you can get an Offer in Compromise accepted. However, the cases are few and far between.
Doubt as to Liability Offer in Compromise
If you believe the tax amount owed is incorrect, you would do this type of Offer in Compromise. If there is already a final court judgment or decision on your case, this type of Offer in Compromise is not available.
Examples of when a Doubt as to Liability Offer (IRS Form 656L) Would Be Filed
Bad Audit: If you believe your audit was done incorrectly or there is new evidence to support your deductions.
Improperly Filed Returns: Stock options are given to you from your employer. You report them based on what the employer stated as the value. You pay the taxes and Alternative Minimum Tax but cannot pay the full debt. The stocks were not valued properly due to fraudulent acts of the broker and/or employer. You find this out later and file a claim for a refund and the IRS denies it.
The IRS does not want you to file this type of Offer in Compromise right away in most situations. The chart on page 3 of IRS Form 656L explains what you should do first in a variety of situations where you may be considering this type of Offer.
Selecting The Best Type of Offer in Compromise
If you qualify for a Doubt as to Collectibility Offer in Compromise, this is the best option in most cases. Acceptance is more likely for these types of Offer in Compromise. If you can full pay the balance based on the IRS Collection Financial Standards, these might be your only Offer in Compromise options.
If you owe more than $20,000 to the IRS, fill out our contact form or call us at (888) 515-4829 to set up a free consultation with one of our experienced tax attorneys. They will give you a better understanding of your options going forward with different types of Offer in Compromise.
Please note that the information on this page is informational only and does not constitute legal advice. Use at your own risk.