An offer in compromise (OIC) might be the right course of action to settle your tax liabilities with the IRS. The OIC process is long and complicated. Seeking out the professional assistance of a seasoned tax attorney should be your next step in resolving your tax debt.

Doubt as to collectability — whenever there is legitimate doubt that the taxpayer will ever be able to pay off their tax liability within the statute of limitations. An offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment plan. Generally, the IRS will not accept OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is a formula used by the IRS to measure a taxpayer’s ability to pay. This formula incorporates the value of the taxpayer’s assets as well as future income minus any actual living expenses.

Doubt as to liability — Doubt as to liability exists where there is a genuine dispute as to the existence or amount of the correct tax debt under the law. This may occur when an examiner failed to consider the taxpayer’s evidence of non-liability of tax or if penalties were assessed even though the taxpayer meets the requirements to not have penalties assessed against them.

Effective tax administration — If there are no grounds for compromise under the doubt as to collectability or doubt as to liability provisions, a compromise may be entered into to promote effective tax administration when compromise of the liability will not undermine compliance with the tax laws and collection of the full liability will create economic hardship. Regardless of the taxpayer's financial circumstances, exceptional circumstances exist such that collection of the full liability will be detrimental to voluntary compliance.

Any forms of collection against the taxpayer are suspended once a valid offer in compromise has been filed and will continue to be suspended until a determination by the IRS has been made. It is important to note that the IRS is not bound or confined to the terms in the OIC filed. Often, offer in compromises lead to extensive negotiations with the IRS, which is why it is best to hire an experienced professional to handle these matters.

Taxpayers have three options to pay the offer in compromise amount:

• Lump Sum Cash: This option requires 20% of the total offer amount to be paid with the offer and the remaining balance paid in 5 or fewer payments within 5 or fewer months of the date your offer is accepted.
• Periodic Payment: This option requires the first payment to be paid with the offer and the remaining balance paid in monthly payments within 6 to 24 months, in accordance with your proposed offer terms.
• Deferred periodic payment: offer paid over the remaining statutory period for collecting the tax.

If you are facing tax issues, Our Firm is Your Solution. Frey Law Firm is here to help you under the guidance of Nicholas Frey. Contact us today for your free initial consultation.