Offer in Compromise

You have the right to representation by an Enrolled Agent (EA), CPA or Attorney. You don't have to face the IRS alone, or at all!

Settling Crippling Tax Debt for Pennies on the Dollar

The IRS Offer in Compromise process gives taxpayers with crippling tax debt a chance to settle for pennies on the dollar. How much you can settle for depends on your unique financial profile.

The ultimate goal of an offer-in-compromise is a settlement that is in both the Government's and the taxpayer's best interest. The IRS will accept an offer-in-compromise to settle unpaid accounts for less than the amount owed when doubt exists as to whether or not you owe the liability, or when there is doubt that the liability can be collected in full and the amount you offer reasonably reflects your potential ability to pay. This may be an alternative for resolving your tax delinquency.

If the basis of the offer is doubt that you owe the liability, for example, a disputed assessment, you must provide a written statement of supporting evidence. The Service cannot accept a compromise where the liability has already been decided by a court.

To submit an offer-in-compromise you must complete Form 656; complete instructions are provided on the form. If the basis of the offer is doubt that the liability can be collected in full, you must submit Form 433A, Collection Information Statement for Individuals, and/or Form 433B, Collection Information Statement for Businesses. These forms provide a statement of your income, expenses, assets, and liabilities.

The amount of the offer should at least equal or exceed your equity in all assets. When reviewing an offer, the IRS considers three factors:

The amount collectible from your assets,

The amount collectible from present and future income,
The amount that can be collectible from 3rd parties; and
Sources of funds that are available to you but not subject to the Service's collection for example, workers compensation and veteran's benefits.

It is your responsibility to show how acceptance of the offer would be in the best interest of the Government.

Generally, the IRS will not accept an offer unless it is clear that you have complied with all current filing and paying requirements. The acceptance of an offer by the IRS creates a "fresh start"; therefore, the terms of the offer require future compliance with all tax filing and paying requirements for a period of 5 years. If you do not abide by all the terms of the offer, including the compliance requirement, the IRS may reinstate the entire tax liability.

Additional information about the Offer-in-Compromise can be found on Form 656, and in Publication 594, Understanding the Collection Process. Publications and forms may be downloaded from this site.

Offer in Compromise Hardship Rule (Effective Tax Administration). In some cases where paying on a normal compromise situation would create a financial hardship, the IRS can accept offers for less than what the 'Reasonable Collection Potential' may indicate. This is for cases whereas the taxpayer has enough assets to pay a compromise but due to other factors, such as health, it would create a hardship for the taxpayer to pay because the taxpayer then would not be able to pay for necessary healthcare. (This is just one example. There can be many reasons and factors.)

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You have the right to representation by an Enrolled Agent (EA), CPA or Attorney. You don't have to face the IRS alone, or at all!

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