A Brief Explanation of Offers in Compromise

By, Jones & Ryan Attorneys at Law

We have all seen the commercials that flood our television at times and promise to reduce our tax debt to pennies on the dollar. They claim they can use the Offer In Compromise program to reduce or eliminate tax debt. This is simply not true, and you will end up feeling like you have been scammed rather than saved. Yes, in extreme circumstances, the IRS will settle old debts for a tiny percentage of the outstanding amount owed, however, these are cases where the client is either near death, completely unemployable or without any valuable assets. Most likely, you will be charged a large upfront fee, but little to nothing will be accomplished regarding your tax problems. Offers In Compromise can be a confusing topic. Below are some frequently asked questions and simple answers about the Offers In Compromise IRS program. The lawyers at Jones & Ryan are experts in this field and have been preparing Offer In Compromise as well as other tax relief documents since the inception of the program in 1991.

What is an Offer In Compromise?

In certain circumstances, the IRS will accept less than the full amount due to satisfy your tax liability. Usually it is based on your inability to pay the full amount that you owe the IRS. However, an Offer In Compromise can also be based on your belief you do not owe what the IRS says you owe, or your payment will lead you to experience significant hardship. In order for the IRS to determine whether it will accept such an offer, it is necessary to submit complete and exhaustive financial documentation — including assets, liabilities, and current average monthly income and expenses. If the offer is accepted, any tax liens filed regarding those taxes will be released. The IRS is prohibited from levying on assets while an Offer In Compromise is pending.

What is the process of submitting an Offer in Compromise?

For each offer you make, you must pay the IRS a $150 application fee and submit a deposit of funds equal to 20% of the total amount in your Offer In Compromise (as of July, 2006), which is non refundable. This fee, and the deposit submitted with an Offer In Compromise is designed to eliminate frivolous offers. However, it is a small price to pay for the ability to settle your tax debt for less than the total amount owed.

How long does it take for an Offer in Compromise to be approved by the IRS?

Depending on the caseload in your district, it generally takes six to twelve months. No matter how long it takes to review the Offer In Compromise, all further collection activities are suspended during that period.

What happens if the IRS accepts my Offer In Compromise?

Pay the agreed upon amount due as soon as possible. Your tax attorney will explain the options, including a possible extended time to pay. You must also comply with all filing and payment deadlines for the next five years.

Remember, a thorough financial analysis is needed to determine if you are eligible for an Offer In Compromise. No one can promise you that they can reduce your tax debt to pennies on the dollar without talking to you first.