Settling Tax Debt With an Offer in Compromise

If you are looking to settle your tax debt with an offer in compromise, you need a skilled lawyer who knows exactly what to do to help you become debt free. The tax lawyers at Frost Law specializes in personal and corporate tax controversies.

An offer in compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The three types of offers in compromise pertain to:

Doubt as to collectability

When doubt exists that the taxpayer could ever pay the full amount of tax, penalties and interest owed within the remainder of the collection statute. An offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment plan. In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay and includes the value that can be realized from the taxpayer’s assets such as real property, automobiles, bank accounts and other property. The RCP also includes anticipated future income, less certain amounts allowed for living expenses.

Doubt as to liability

When doubt exists that the assessed tax liability is correct, if penalties were assessed even though the taxpayer meets the criteria for non-assertion of penalties (reasonable cause) and if, during an audit, the examiner failed to consider the taxpayer’s evidence, or the taxpayer has new evidence to substantiate positions taken on a tax return.

Effective tax administration

When the assessed tax is correct and the IRS has determined that there is potential to collect the full amount of the tax owed, but an extraordinary circumstance exists that would allow the IRS compromise. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair, in violation of public policy or inequitable.

Taxpayers have three options to pay the offer in compromise amount: a lump sum cash offer payable in five or fewer non-refundable installments; a short-term periodic payment offer also payable in non-refundable installments within 24 months of the date the IRS received the offer; or a deferred periodic payment offer paid over the remaining statutory period for collecting the tax.

Our tax lawyers work directly with you, to address your complex taxation legal issues and needs. For information you should have about offers in compromise, installment agreements and other facets of IRS collections cases, contact us.