Offer In Compromise

What is an Offer In Compromise?

An Offer In Compromise is a great way to settle your tax debt with the IRS. That being said it is a complicated process that should only be handled by a professional. So what is an Offer In Compromise, and how does it work? An Offer In Compromise is an agreement between the taxpayer and IRS that settles the tax debt for an amount that is less than the full balance owed. The IRS typically will not accepted it if they believe that the back taxes can be paid for in either a lump sum or a monthly payment plan. The IRS will carefully examine the taxpayer’s income and assets to determine if they have the ability to pay the tax debt without the use of an Offer In Compromise. They are approved based on the legal requirements as set forth by federal tax laws..

What It Is and How It Works

That being said the United States tax system was built on the foundation that all eligible taxpayers are required to accurately report their tax liabilities along with paying them on time by the expected calendar date set by the government. It must be noted that the Internal Revenue Code provides the IRS authority to make a settlement, also know as a compromise, which is based on the individual taxpayer’s particular financial state of affairs, for less than the amount that is currently owed.

So how do you know if you are eligible for an Offer In Compromise? If a person or business has the financial ability to pay the tax debt in full, even if it is over the course of a few years, than they will not qualify for an Offer In Compromise. The good news regarding a settlement of the tax debt is concerned is that if a person or company will never have the ability to fully pay of the tax debt, or there is a doubt regarding the legitimacy for the stated tax debt, or there are certain other conditions that prevail, than by law the IRS has the ability to compromise the back tax debt. For example:

A doubt exists regarding the ability to collect the tax debt

The IRS believes that you will never have the financial ability to pay the entire back tax balance. Prior to the IRS taking this into consideration, you must not have the ability to pay your owed taxes in full through a monthly payment plan, or by selling assets that can be used towards the balance. The correct information must be submitted in order for the IRS to even consider your application including all the necessary supporting documentation, and a recent collection information statement. This is one reason that it is crucial to hire professional representation when applying for an Offer In Compromise.

There is a doubt concerning the legitimacy of the tax debt

Mistakes certainly happen. There is always the potential that the tax debt amount is incorrect. If you do not think that you either owe the debt or are obligated to pay all of the amount that the IRS is claiming, than an Offer In Compromise may be submitted based on the doubts as to liability. A complicated, and extremely detailed written statement must be submitted to the IRS explaining why you do not believe that the tax balance, or partial tax balance is owed. The collection information statement is not required if the Offer In Compromise is only based on the doubt of liability alone. This is an extremely complicated process that is best handled by a professional tax relief specialist.

Special situations exists that would advance the effective tax administration to settle the tax debt

This circumstance is based around the fact that the taxpayer is certain that the tax debt is owed, and could be collected by the IRS, however there is a pressing circumstance that should be considered regarding a settlement amount. In order to be eligible, you must prove that the back tax collection would bring an economic hardship or would be either inequitable or unfair. In order to apply for an Offer In Compromise under this situation, a written explanation that accurately details your particular special circumstance as to why paying the tax debt in full would create a financial hardship for you that would be either inequitable or unfair. A collection information statement must also be prepared and submitted. These documents are certainly far too important to prepare yourself. It is best to leave work with a professional that will properly prepare everything you need in order to succeed in obtaining an approval.

The IRS certainly may compromise any civil or even criminal court case that arises under the Internal Revenue Code, and once they send a case to the Department of Justice, the later has jurisdiction over the outcome. There are a few other factors that may limit your ability to receive an Offer In Compromise. If you need tax resolution today, please contact Alliance Tax Advocate to review all of your options.

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