When Can (and Should) You Submit an Offer in Compromise to the IRS?

If you have fallen behind on your federal taxes, you are not alone. According to Internal Revenue Service (IRS) data, more than 14 million U.S. taxpayers owe outstanding taxes, interest and penalties. Due to this enormous number, the IRS offers various options to taxpayers who are in need of financial relief, one of which is the offer in compromise program.

What is an Offer in Compromise?

An offer in compromise is a way to settle your federal tax debt for less than the full amount you owe. If the IRS accepts your offer, you will be required to pay the agreed-upon amount; and, once you do, you will be back in good standing with the IRS.

As its name suggests, an offer in compromise is indeed an “offer” that you, as a U.S. taxpayer, make to the IRS. Once you submit your offer, an IRS agent will review it, and he or she will decide whether your offer should be accepted, rejected, or returned. Rejections are subject to appeal; and, if your offer is returned, you will have the opportunity to address the issue(s) identified in the return letter and then resubmit your offer.

Are You Eligible to Submit an Offer in Compromise?

Not all U.S. taxpayers are eligible to submit an offer in compromise. In order to qualify to submit an offer, you must:

• Be unable to pay the full amount you owe, or else be able to demonstrate that paying the full amount would, “create an economic hardship or would be unfair and inequitable because of exceptional circumstances;”
• Have filed all required federal returns (regardless of your ability to pay any amount owed); and,
• Not be a party to a pending bankruptcy proceeding.  

If you are seeking relief from federal tax debt for your business, you must also be current on all required employment tax deposits.

Submitting an offer in compromise involves submitting multiple IRS forms as well as documentation that demonstrates your inability to pay (or the undue financial hardship you or your business would endure if forced to pay in full. You must also submit a non-refundable application fee and partial tax payment.

What are the Consequences of Submitting an Offer in Compromise?

If you submit an offer in compromise, have your offer accepted, and pay the amount you have agreed to pay, then you will be deemed current on your federal income tax obligations. However, if you fail to pay, then the IRS can pursue collection—and potentially pursue tax fraud or tax evasion charges as well. To decide whether submitting an offer in compromise is a good option for you, you should discuss all of your options with an experienced tax attorney.

Discuss Your Options with Boston Tax Lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group

Do you have questions about submitting an offer in compromise to the IRS? If so, we encourage you to get in touch. To schedule a confidential consultation with Boston tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, call 617-692-2989, email ket@thornlawgroup.com or request an appointment online today.