The Internal Revenue Service (“IRS”) provides a program for taxpayers who are unable to pay an unpaid tax debt in full or through an installment agreement.  The offer in compromise (“OIC”) should be viewed as an option of last resort after taxpayers have exhausted all other available payment options (e.g., installment agreements, etc.).  IRS statistics indicate that the IRS resolves less than one percent of all balance due on unpaid tax accounts through the OIC program.

An OIC is an agreement between a taxpayer and the IRS that resolves the taxpayer's unpaid tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances. A taxpayer can compromise an unpaid tax liability for any of the following reasons:

• Doubt as to Liability - Doubt exists that the assessed tax is correct;
• Doubt as to Collectibility - Doubt exists that you could ever pay the full amount of tax owed; and
• Effective Tax Administration – Doubts does not exist that the tax is correct or that the amount owed could be collected, but an exceptional circumstance exists that allows the IRS to consider a taxpayer's OIC. To be eligible for a compromise on this basis, the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable.

As a result of a recent Federal law, taxpayers must generally meet all of the following requirements to be considered for an OIC:

• Is not a debtor in a bankruptcy case,
• Submitted the $150 application fee, or Form 656-A, "Income Certification for Offer in Compromise Application Fee and Payment,
• Submitted 20 percent payment with the lump sum offer, or a signed Form 656-A, "Income Certification for Offer in Compromise Application Fee and Payment,
• Submitted the first installment payment on a periodic payment offer, or a signed Form 656-A, "Income Certification for Offer in Compromise Application Fee and Payment, and
• Submitted the first installment payment on a periodic payment offer, or a signed Form 656-A, "Income Certification for Offer in Compromise Application Fee and Payment.

Under the OIC program, there are three payment plans taxpayers and the IRS may agree to:

• Cash - paid in 90 days or less.
• Short-Term Deferred Payment - more than 90 days, up to 24 months.
• Deferred Payment - OICs with payment terms over the remaining 10 year statutory period for collecting the tax.

For more information or questions about your specific tax matter, please contact the office or click CONTACT US.

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