Offers - Who is Eligible?

Internal Revenue Code authorizes the IRS, to accept less than full amount of tax liability owed in any civil or criminal case arising under the tax laws prior to the case's referral to the Department of Justice. For an Offer in Compromise to be accepted, the taxpayer must establish to the satisfaction of the IRS that the taxpayer either: has no means of paying the tax, or does not actually owe the tax.

Most individual and business taxpayers who owe income taxes, payroll taxes, penalties or interest may submit an Offer in Compromise to settle these liabilities. The IRS will not accept offers from every single taxpayer who submits an offer. One of the following factors must be established in order for the IRS to settle the liability:

  • The taxpayer cannot pay off the liability;
  • There is doubt that the taxpayer actually owes the liability;
  • The settlement would promote effective tax administration

Prior to 1992 the IRS has been reluctant to settle tax liabilities. In February of 1992, the IRS announced new procedures for settling back taxes. The new procedures greatly liberalized the Offer in Compromise process and increased the likelihood that financially distressed taxpayers would be able to settle their liabilities for less than the full amount.

The IRS will accept an Offer in Compromise when it is unlikely that the tax liability can be collected in full and the amount of the Offer in Compromise reasonably reflects collection potential. An Offer in Compromise is a legitimate alternative to declaring a case as currently not collectible, or to a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to thegovernment.

If a taxpayer requests an Offer in Compromise based on effective tax administration, the IRS will first be required to establish that there is no doubt to liability or cellectibility

Offer in Compromise - Who is NOT Eligible? A taxpayer are not eligible for consideration of an Offer in Compromise based on doubt as to collectibility or effective tax administration if:

  • Taxpayer has not filed all federal tax returns, or
  • Taxpayer is involved in an open bankruptcy case.

Furthermore, if an ongoing business taxpayer files an Offer in Compromise for payroll taxes, that business must have filed and deposited all payroll taxes on time for two quarters preceding the Offer in Compromise. The taxpayer must further deposit all payroll taxes on time during the quarter in which the Offer in Compromise was submitted.

The Offer in Compromise program requires that subsequent to acceptance of an Offer in Compromise, the taxpayer must remain current on all tax obligations for a period five (5) years. Therefore, if the taxpayer's Offer in Compromise is accepted and paid in full, but he later fails to pay current income taxes or other taxes, the Offer in Compromise might be revoked by the IRS.

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