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How to Benefit From the IRS Offer in Compromise Program


Posted in on March 29, 2019

For U.S. taxpayers faced with unpayable tax debt, an Offer in Compromise may be the best path forward. Under the Offer in Compromise program, the IRS and taxpayer may agree to settle a tax debt for less than the full amount owed. This allows the taxpayer to relieve their crushing debt burden, while the IRS is able to collect a portion of the amount owed.

Although an Offer in Compromise agreement can be beneficial for all parties, there are potential pitfalls for taxpayers in the process. In addition, success is not guaranteed - most Offers in Compromise are not accepted by the IRS. This makes it all the more advisable for a taxpayer to seek legal assistance with the Offer in Compromise program.

Benefits of an IRS Offer in Compromise Agreement

There are numerous benefits to a taxpayer of entering into an Offer in Compromise agreement with the IRS, including the following:

  • Back tax liabilities settled
  • All federal tax liens released
  • Reduction of tax liability
  • Suspension of collections activity
  • Avoidance of bankruptcy

However, there are potential negative considerations for the taxpayer. If the taxpayer claims economic hardship or inability to pay, they will need to provide full financial disclosure of assets and income as proof. In addition, the taxpayer must also meet all future tax liabilities for five years. Failure to do so could negate the agreement and cause the original amount to be owed again.

Eligibility for an Offer in Compromise

A taxpayer may be eligible for the Offer in Compromise program if the taxpayer, whether an individual or a business entity, meets these requirements:

  • All tax returns have been filed
  • Taxpayer is not in bankruptcy proceedings
  • If the taxpayer is an employer, it has made all required deposits

Grounds for IRS Acceptance of an Offer in Compromise

The IRS states three grounds for acceptance of an Offer in Compromise:

  1. Doubt as to Liability

There must be a legitimate dispute regarding the tax debt. The dispute may be about the amount of the debt or whether there is any tax owed at all.

  1. Doubt as to Collectability

There must be doubt as to whether the taxpayer can pay the full tax debt owed. This doubt will be deemed present when the tax debt is greater than the taxpayer’s income and assets.

  1. Effective Tax Administration

The term “effective tax administration” refers to the IRS’s considerations of fairness and the taxpayer’s economic hardship. The IRS will accept Offers in Compromise when (1) full payment of the tax debt would create economic hardship for the taxpayer or (2) requiring full payment would be unfair due to exceptional circumstances. The IRS will only consider these grounds when the first two reasons are not available, meaning there is no doubt the full tax debt is owed and collectible.

Contact a Maryland Tax Lawyer at Thorn Law Group Regarding Your Tax Debt

Contact the Thorn Law Group immediately to consult with a Maryland tax lawyer to assist with seeking relief on your U.S. tax debt. To schedule a consultation, contact Kevin E. Thorn, Managing Partner, at 240-235-5096 to schedule a consultation, or email him at ket@thornlawgroup.com.

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