IRS Offer in Compromise and the Fresh Start Program
If you have tax debts and feel you owe more than you can reasonably pay over time, you may qualify for an offer in compromise. Taxpayers have options when considering how to effectively pay down or reduce their IRS tax debts. When reviewing options, taxpayers should always consider whether they qualify for an offer in compromise. While generally requiring more work than other tax relief options, an accepted offer in compromise is an effective way to get a fresh start for tax compliance going forward and stop stressing about prior tax years and tax debts.
What is an IRS Offer in Compromise?
An Offer in Compromise is an IRS program that allows qualifying taxpayers to settle IRS debts for less than the full amount and typically in less time than other tax relief methods. Any debt settled includes interest and penalties.
There are three different types of offer in compromise - an offer in compromise for doubt as to liability, doubt as to collection, and effective tax administration. The Internal Revenue Code defines each type of offer and the IRS fills in the gaps to achieve the offer in compromise objectives. Taxpayers with tax debts may submit an offer with the proper forms, supporting information and payment to the IRS. The IRS will review the taxpayer's offer in compromise and either accept or reject the offer. If accepted, the offer settles the tax debt as long as the taxpayer satisfies all of the additional requirements related to the offer.
State tax authorities may also allow taxpayers to compromise state tax debts. Some states provide an offer in compromise program similar to the IRS program with slight modifications or limitations. Other states may use their own criteria to determine if a tax debt should be compromised. Michigan has a program similar to the IRS offer in compromise program.
How Can Taxpayers Qualify for an Offer In Compromise?
Taxpayers may qualify for an offer in compromise based on three different programs. Each program is separate and taxpayers only need to qualify for one of the three.
Doubt as to Liability as the Basis for an Offer in Compromise
Doubt as to liability exists when there is a genuine dispute as to the existence or amount of the correct tax liability under the law. In cases where the existence or amount of tax liability has been established by a final court decision (after all appeals), doubt as to liability does not exist. For a taxpayer to make a doubt as to liability offer in compromise, there must be legitimate doubt from both the taxpayer and IRS view regarding a question of tax law related to the tax liability. No financial information statements are filed.
Doubt as to Collection as the Basis for an Offer in Compromise
As the name implies, when the IRS does not believe it can collect the full amount of taxes, penalties and interest due, it may accept less than full payment from a taxpayer. All tax years that are successfully resolved through a completed offer in compromise or conclusively closed and generally cannot be revisited for audit by the IRS. In exchange for this benefit, taxpayers must generally provide the IRS with significant personal financial information, make all required payments under the accepted offer and maintain full tax compliance for five years following the year your offer is accepted.
Many other requirements must be satisfied before the IRS will grant a fresh start under the doubt as to collection offer in compromise program, including a review of full pay potential under an installment agreement. Taxpayers must file all required tax returns, make current year estimated tax payments, and include the initial payment with the application.
Two types of doubt as to collection offer in compromises exist - a lump sum and period payment offers.
Effective tax administration is a third option where in the interests of settling to encourage other potential taxpayers to file and pay taxes, the IRS will settle a tax debt. This option is not very common compared to a doubt as to collection offer in compromise.
How Long Does an IRS Offer in Compromise Take to Process?
The IRS also weighs an Offer in Compromise against a taxpayer's ability to pay the tax debts fully using an installment agreement or if currently not collectible status would result in a higher collection amount for the IRS in the future. The Offer in Compromise is generally one of the most time intensive tax resolution options for taxpayers facing delinquent tax debts and not all taxpayers will qualify. The benefits are worth it, however, and taxpayers facing substantial delinquent tax liabilities should generally consider this option.
What Tax Years May Be Considered for an Offer in Compromise?
Tax years that are assessed and have unpaid taxes, penalties and interest may be included in an offer in compromise. If a taxpayer has filed tax returns late and no assessment has been made, any unpaid taxes may be included in the offer in compromise, but the IRS will need to review these returns and this generally results in additional time to determine if an offer will be accepted. Any unpaid taxes related to years that tax returns have not been filed will not be considered. It is important that taxpayers include all unpaid taxes on the offer in compromise and ensure that the additional requirements are satisfied for the offer to be accepted.
If You Need Help Filing an Offer In Compromise under the IRS Fresh Start Program, Contact Steiger Tax Law
The IRS uses a formula as a starting point when considering offers that takes your sources of income and expenses into account, as well as your assets and related liabilities. Taxpayers benefit from a tax attorney's ability to craft the information in a way that maximizes the chances of an offer being accepted by the IRS that also meets the taxpayer's needs for preserving assets and income to pay necessary expenses. If you have questions about an Offer In Compromise, contact Michigan Tax Attorney Andrew Steiger at Steiger Tax Law for a free consultation.
Offer in Compromise Free Consultation
Contact Michigan Tax Attorney Andrew Steiger for free consultation to determine if you qualify for an offer in compromise or other tax debt relief. Free consultation does not establish attorney-client relationship. Information is confidential and protected by attorney-client privilege.