What is an Offer in Compromise?
An Offer-in-Compromise is an offer, as payment in full, of an amount less than the tax, premium or principal claim and that does not include any penalty or interest. An Offer-in-Compromise differs from a settlement in that the requirements for approval are much more stringent. If a business or individual seeks to waive the penalty and/or interest in part or whole, but will pay the tax, premiums and/or principal claim in their entirety, the offer is not an Offer-in-Compromise.
An offer in compromise (OFFER IN COMPROMISE) is an agreement between a taxpayer and the Internal Revenue Service (IRS) that resolves the taxpayer’s tax liability. The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances. The IRS may legally compromise for one of the following reasons: • Doubt as to Liability: Doubt exists that the assessed tax is correct. • Doubt as to Collectibility: Doubt exists that the taxpayer could ever pay the full amount of tax owed. The minimum offer amount must generally be equal to (or greater than) the taxpayer’s reasonable collection potential (RCP). The RCP is defined as the total of the taxpayer’s realizable value in real and personal assets, plus his/her future income. Unless the taxpayer files an OFFER IN COMPROMISE claiming special circumstances, the offered amount must equal or exceed the reasonable collection potential. Realizable value is the asset’s quick sale value
An Offer in Compromise is an out of court agreement between the IRS and the taxpayer that resolves the taxpayer’s liability. The Internal Revenue Service has the authority to settle or compromise federal tax liabilities by accepting less than full payment under certain circumstances. These circumstances are: Doubt as to Liability – The IRS may also accept an offer in compromise when doubt exists that the amount of tax owed is correct. The taxpayer needs to explain why they believe that they do not owe the tax that they would like to compromise. Financial inability to pay will not be considered under this basis alone. Doubt as to Collectibility (most common) – Under this basis, there is doubt that the amount of tax owed can ever be paid back in full. In order to successfully negotiate this type of offer in compromise, the taxpayer must demonstrate through complete and thorough financial statements and supporting documentation that there are insufficient assets and income to pay the full
