Offer in Compromise, panacea or parable?

Tax resolution companies fill the cable airwaves during the early morning hours with ads suggesting it is easy to get an offer in compromise past the IRS. These same companies boast of cutting back taxes into a fraction of what you owe and make it sound too good to be true. But what is an offer in compromise, and is it really that easy to get one accepted?

An offer in compromise is a formula-driven settlement agreement between a delinquent taxpayer and the IRS. Such a settlement is not available as a means of resolving back taxes owed if the Agency believes the delinquent taxpayer is capable of paying the full amount over time (through a payment agreement) or is capable of making a lump sum payment. According to many tax lawyers, typically the IRS will not accept an offer in compromise if it believes it can reasonable collect more than the proposed settlement amount.

The IRS may be expected to consider an offer in compromise which is based on any one of following three (3) grounds. If there is a doubt as to collectability, or a doubt as to liability, the IRS may consider an offer in compromise. Also, the IRS may consider an offer in compromise in furtherance of effective tax administration. Examples of what might qualify include situations where the taxpayer would likely be subject to economic hardship or where imposition of the full tax liability could be unfair or inequitable.

If you have unfiled returns, chances are the IRS will not consider your offer in compromise until the full extent of your tax liability has been established through the filing of those unfiled returns. So the starting point for any negotiations with the IRS is likely to include making sure there are no unfiled returns.

Recognizing an offer in compromise must meet certain threshold criteria before the IRS will even begin to consider the offer’s terms, and understanding the terms must convince the IRS they can’t otherwise do better, you be the judge. Is it easy to get some windfall offer slipped past the IRS?

Get candid answers to your tax questions. Do your homework and get the information you need. The IRS’s website has most of the information you may need to help settle your back taxes. If you have further questions, consult a competent tax lawyer. Tax attorneys are bound by ethical standards imposed by the State Bar(s), the IRS, and the federal Courts (e.g. U.S. Tax Court, U.S. District Court, etc.).

Ultimately it comes down to this; if you don’t act you can’t fix your tax problems. So don’t let back taxes and/or unfiled returns keep you up at night. Get whatever help you need and just do it. That’s no cure-all, but it’s no story either. That’s just the way it is!


Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

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