Despite the cleaver catch phrases in tv commercials and radio ads to the contrary, the IRS actually rejects settlement (Offer in Compromise) offers more often than not.
So, what exactly is an offer in compromise? An offer in compromise is contractual agreement between a taxpayer and the IRS where the taxpayer agrees to pay a certain sum in settlement of the assessed tax liability. This includes penalties and interest.
The three situations the IRS will consider an offer: (1) doubt as to the accuracy of the tax liability assessed; (2) doubt as to the IRS’s ability to collect the full amount of the tax, penalties, and interest, or (3) economic hardship.
Doubt as the ability to collect exists if the taxpayer’s assets and income are less than the full amount of the liability-the taxpayer does not have assets the IRS can collect the liability from. Economic hardship is broader in the sense that the IRS in theory could collect the full liability BUT if the IRS were to collect the full liability the taxpayer would not be able to pay his or her reasonable living expenses.
Despite the popular advertisements for tax settlements, taxpayers should be aware of the applicability of their situation in an IRS settlement. If the offer is NOT accepted by the IRS, the taxpayer has potentially wasted thousands of dollars in fees while penalties and interest continue to accrue on the liability.
If you have mounting IRS tax liability and would like to discuss your options with a LOCAL tax attorney, contact us today.
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