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Offers in Compromise
If a taxpayer is facing a tax liability far beyond his/her/its ability to pay, even in a payment plan, the best option may be an Offer in Compromise (OIC), authorized under section 7122 of the Internal Revenue Code. An offer in compromise is an agreement between the IRS and the taxpayer to settle the debt for less than what is actually owed.
The tricky part is that the acceptance of an Offer in Compromise is in the control of the IRS. The IRS is not obligated to settle a taxpayer’s liability for less than what the taxpayer actually owes, and it is the IRS’s job to get the most money they can out of each taxpayer.
The IRS is authorized to compromise liabilities on three different grounds: Doubt as to Liability (DATL), Doubt as to Collectibility (DATC), or to promote Effective Tax Administration (ETA).
In order to qualify for an Offer in Compromise, a taxpayer must have filed all required tax returns prior to submitting the offer. While the offer is pending, the taxpayer must continue to timely file all returns and pay all taxes by their due date. Failure to do so may result in an automatic rejection of the offer.
If the IRS accepts the taxpayer’s offer, the unpaid tax debt(s) are forgiven so long as a number of conditions are met. The IRS expects that the taxpayer will have no further delinquencies and will fully comply with the tax laws. If the taxpayer does not abide by all the terms and conditions of the Offer in Compromise, the IRS may determine that the Offer in Compromise is in default, and seek to collect the full amount of the tax liability. These terms include the requirement that, while the Offer in Compromise is pending (before acceptance) and for a period of five years after its acceptance, the taxpayer must timely file all tax returns and pay all taxes. When an Offer in Compromise is declared to be in default, the agreement is no longer in effect and the IRS may then collect the amounts originally owed, plus interest and penalties.
There are very specific, complex rules that must be followed prior to the submission and acceptance of an Offer in Compromise by the IRS and many taxpayers will not qualify. Thus, you should be wary of individuals or companies that boast that they can easily settle IRS tax debts for pennies on the dollar.
For taxpayers that qualify, an Offer in Compromise is a great way to resolve tax liabilities and give taxpayers a fresh start. However, the decision to submit an Offer Compromise is complicated and many factors need to be considered to properly analyze the situation. The success of your Offer in Compromise depends on the proper application of the tax laws, experience with the IRS, and attention to all the detail of your case in order to get the best result for you.
Make sure you fully understand all the terms and conditions you are agreeing to before you submit your Offer in Compromise. The timing of an offer submission and the designation of the payments (to specific tax years) can greatly impact your chances of a good resolution.
The tax attorneys at the Politte Law Offices are familiar with the Offer in Compromise process, and will analyze your case to determine the avenues available, including whether an Offer in Compromise is right for you. We will then negotiate with the IRS and present persuasive arguments for acceptance of an Offer in Compromise. Make sure you have the best chance of success and are not wasting your money.
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