An Offer In Compromise is a tax settlement, where the government takes less than what is owed on the debt as satisfaction for the entire debt. With the IRS and many states, sometimes these can be settled for a fraction of a penny of what is owed. Not everyone qualifies, but this is the main sales pitch you will hear on the radio and on TV from various tax relief firms. Many firms charge a high fee then you end up in an IRS payment plan. If one can be had, TRP will get you the best possible legal result. If you cannot get a settlement, we will tell you why.
You should submit an Offer In Compromise before your case goes to collections with the IRS. If it already is in collections, the collections department should be contacted prior to submission. Many tax relief firms just submit the offer without contracting collections first. This can unfortunately lead to you being garnished while the settlement is pending, as its up the the IRS Offer In Compromise department to determine whether or not to release existing garnishments. If you are not sure if your case is in collections, see our IRS letters guide.
With the IRS there are two types of Offers In Compromise: Doubt as to Collectability and Doubt as to Liability. Doubt as to Collectability represents the vast majority of Offers that are accepted by the IRS. Doubt as to Liability Offers are rarely accepted.
Doubt as to Collectability
In order to qualify for this type of IRS settlement, the following typically needs to apply:
- 80% of the value of your assets do not exceed the total amount of tax due.
- At the end of the month, you do not have much left over income in comparison to your expenses.
- You did not incur the tax debt from cashing out a retirement account and not paying the taxes on it.
- You did not get some other type of capital gains that you did not pay the taxes on.
These are the basic rules, but of course there are exceptions and special circumstances. #3 and #4 are called “dissipated assets” and sometimes the IRS will accept a settlement for these types of debts when the debt is more than 3 years old, but this is case by case. Some of these rules are bendable as far as assets as well. We have had some Offers accepted where the client had their home completely paid off and sometimes this requires an appeal and an explanation of why the IRS should consider the settlement.
Doubt as to Liability
These types of Offers are essentially requests to the IRS that it would be unjust to hold you liable for the tax debt. An example for this would be you were assessed a payroll debt from a business but really you had nothing to do with payroll taxes while you were associated with that business. These are hard to get, so the case must be strong.
Do I Qualify for an Offer In Compromise?
Let one of our expert tax relief attorneys give you a free evaluation. Fill out our contact form and we will get back to you!