OFFERS IN COMPROMISE

The IRS is willing to make deals and many times will settle for less than the full amount owed. However, whether a taxpayer can make a deal with the IRS and for how little depends on his or her particular circumstances. Therefore each case is unique. The way to make a deal with the IRS is called an Offer In Compromise. It is available only to those taxpayers who are current in filing all of their tax returns, so if the taxpayer has unfiled returns, he must first file those returns before submitting an Offer In Compromise.

There are three kinds of Offers In Compromise. The first is an Offer based on doubt as to collectibility. The basic criteria for this Offer is that the taxpayer does not have the present ability to pay the tax and will most likely not have the ability to pay the tax over the remaining life of the statute of limitations for the tax. This ability to pay is determined by the taxpayer's assets and current income and expense picture. There are two parts to making this determination. First is the realizable value of the assets. This means, for instance, the equity value in the taxpayer's home after deducting the mortgage and the net value of his car or other vehicles, boats, etc. One is able to discount the fair market value of these assets somewhat for the purposes of the Offer. Second is realizable future income. This is generally calculated for a period of 48 months, although the period can be shorter depending on the remaining length of the statute of limitations for the case. It is evident that the calculations can become quite involved. Each case will be assessed on an individual basis. Thus extensive financial data must be submitted to the IRS to show the inability to pay. If the taxpayer meets these criteria, he or she is a good candidate for an Offer.

The second type of Offer is based on doubt as to liability. This is when the taxpayer feels that he does not owe the tax and is therefore not liable for the tax. In this case financial data does not have to be submitted to the IRS, but documents must be presented to show that the taxpayer does not owe the tax. The documents, affidavits and other evidence used and how they are presented to the IRS is critical to the success of the Offer. Some amount still has to be offered; however, because the IRS will not accept an offer of $0.00!

The third type of Offer is called Effective Tax Administration. Many people who do not qualify for the first two types do qualify for this one. In this situation, the taxpayer has (generally) enough assets to pay the taxes, but the IRS will agree not to seize the assets to satisfy the debt. Usually, if you have an asset such as a home, the IRS will expect you to borrow against it to pay the taxes. However, this is not always the case. I have been successful in showing the IRS that a retired couple living on Social Security or other small income cannot borrow against their home, which is free and clear. Why? Because they do not have the present income and ability to repay the loan. Therefore this asset is worthless to the IRS and such a taxpayer probably will be a good candidate for an Offer In Compromise. Also, the IRS almost surely would not seize the home and sell it, because it would not be good public policy to put retired people "on the street." This is but one example of how the Effective Tax Administration doctrine works. There are many other types of situations, such as a serious or terminal illness that can trigger this type of Offer. Again, some amount has to be offered because the IRS will not accept an offer of $0.00.

It is critical that a professional who knows the system assist the taxpayer in preparing any type of Offer In Compromise in order to obtain the highest chance of success for the least amount of money offered.

David B. Greene
11 McGee Street
Greenville, South Carolina
1-800-216-1116
David@DavidGreeneAttorney.com