What is An IRS Offer Compromise
An offer compromise is basically an agreement between the Internal Revenue Service better known as the IRS and an individual tax payer in which the tax liabilities are settled for less than the full amount. There are instances when a person is just not able to pay the taxes in full even if given additional time and the option to pay through a payment plan. In such cases, an offer compromise is accepted by the IRS so as to get the maximum amount possible.
I have come across a number of instances when a person wants to pay the taxes but the financial situation is such that it is just not possible. In such cases the IRS accepts an offer compromise if the amount being offered is either equal to or greater than the potential of the person to pay. This is ascertained by reviewing the income, expenditure, property, bank accounts, automobiles and any other assets. IRS also considers the estimated future income and reduces the basic living expenses to reach a figure. If an individual gives an offer compromise for this amount or an amount higher than the one reached, IRS collects the payment offered.
Offer Compromise Situations
There are basically three situations in which the IRS accepts a compromise and these are:
1. Doubt about collectability – There was an instance in the near past, when a housewife had to pay taxes of about $15,000 from her earlier income. She was not working and was barely able to meet the basic living expenses. In such a situation IRS will almost definitely accept an offer compromise.
2. Doubt about liability – There may be a situation when there is a doubt as to the fact if the tax was calculated correctly. This may result due to a mistake made by the examiner to new evidence provided by the tax payer. In such cases IRS may accept an offer compromise.
3. Effective tax administration – In case the tax payer is able to prove that collection of tax will result in hardships and will be unfair, IRS will accept an offer compromise and reduce the amount of tax payable.
The bottom line is that this is the last resort and the IRS checks and rechecks a number of things and factors prior to accepting it. There are more instances of it being turned down as compared to it being accepted. Do you think that you are in one of the above situations and can be benefited by an offer compromise?