An offer in compromise is a provision in the federal tax code that allows you to settle your tax debts for less than what you owe (to a reasonable extent), provided you meet some conditions. It’s a great option to consider if you aren’t able to pay off your entire tax debt due to financial constraints. The main factors considered are:
- Ability to pay
- Asset equity
The IRS will accept an offer in compromise if the amount being paid is the most they can expect to collect within a specified period of time. To participate in the offer in compromise process, tax filings must be current and you cannot file for bankruptcy.
There are two types of offer in compromise payment plans:
- The Lump Sum Cash plan is where 5 or fewer payments are made in addition to 20% of the offer amount paid upfront
- The Periodic Payment plan is where after making an initial payment monthly installments are paid until the offer amount is settled.
In terms of how an offer in compromise is negotiated, there are two types:
- Doubt as to Collectability (DATC): This occurs when the offer in compromise is negotiated on the basis on a taxpayer’s inability to pay tax debts due to financial hardship.
- Doubt as to Liability (DATL): This occurs when the offer in compromise is negotiated if the taxpayer thinks that his or her tax liability is incorrect. It is to reconsider a taxpayer’s tax liability in case of miscalculation or misinformation.
The offer in compromise is a delicate and subtle process that may provide tax relief. The IRS only accepts about 20% of offer in compromise pleas, so it’s important to present the best case for the IRS. The help of highly qualified experts will analyze your specific situation to determine whether you are in fact eligible for an offer in compromise – contact us today.