Offer in Compromise for Individuals

The IRS says that individual taxpayers must meet at least on of three possible circumstances in order to qualify for their Offer in Compromise Program.  Those circumstances are discussed on this page.

Offer in Compromise – Doubt As To Collectibility

Doubt As To Collectibility – In many cases there is serious doubt that the tax and the penalties and the interest will ever be collected by the IRS for various reasons. In these cases IRS asks three pre-qualifying questions. If the answers to all three of these questions is “no” then the offer in compromise case is considered to have a high percentage of being accepted:

    • Is the collection potential higher through enforced collection tactics (like levies and seizures) than through an OIC?
    • Would it be better for us at IRS if we were to wait a while in the hope that this taxpayer’s financial situation might improve and (s)he might be able to pay us more if we just sit back and wait a while?
    • If we were to accept this offer and then it were to be reviewed by uninterested third parties would they think that we came to the wrong conclusion?

Doubt as to collectibility exists in any case where it can be shown that the taxpayer’s assets and income are less than the full amount of the existing tax liability.

Offer in Compromise – Doubt As To Liability

Doubt As To Liability – Of the three qualifying circumstances, this is the least likely to be accepted. In order for this to be approved there must have been a factual error made in the application of the Internal Revenue Code in the assessment of the underlying federal income tax. Possibly an IRS tax examiner did not take into consideration all of the taxpayer’s supporting documentation during an examination.

An individual’s tax liability comes under doubt only when there’s a genuine dispute as to the existence or amount of the correct tax debt under the law.

Offer in Compromise – Effective Tax Administration

Effective Tax Administration – Both parties (the taxpayer and the IRS) agree that the tax is owed. However, if IRS pursued collection of the taxes an undue financial and economic hardship would be created. The taxpayer would thereby be unable to meet his/her ordinary and necessary monthly living expenses.

Offer in Compromise Additional Qualifiers

Below are some additional requirements needed in order to qualify for an offer in compromise:

  • Cannot be in bankruptcy while an Offer in Compromise is being considered
  • Must be current with all federal income tax returns filed
  • Must include the non-refundable $186 application fee
  • Must submit Form 656 and Form 433-A

Other Subjects to Remember

Don’t forget that proper planning will ensure that IRS will not be able to issue a wage levy or a bank levy against you while you have an offer in compromise under consideration. Also, there will be no need for an IRS installment agreement or IRS Uncollectible Status while you have an offer in the works with IRS since all enforced IRS collection action will be postponed during your offer period.