The Three Types of IRS Offer-in-Compromise Programs
I have previously introduced what an IRS offer-in-compromise is (for more detail on the basics click here). Briefly, an IRS offer-in-compromise is a legally binding contract between the taxpayer and the IRS to settle a tax debt for something less than the full amount. The offer-in-compromise “program” is actually three different programs under one umbrella. The goal of all three are the same: to settle your IRS tax debt for less than the full amount.
The three programs are: doubt as to collectability, doubt as to liability, and effective tax administration.
Doubt as to Collectability Offer Program
Doubt as to collectability offers are those where the taxpayer cannot pay the tax debt in full. Essentially, the taxpayer is saying I am broke. This program is great for taxpayers who don’t make a lot of money or who have few assets (you can see why this is important here). The reverse is true if you have a healthy income or a lot of assets. Simply put, to qualify you need to show a true inability to pay your tax debt in full.
If you think you may qualify, you can go to https://irs.treasury.gov/oic_pre_qualifier The IRS has an OK program to check your eligibility. It is not perfect so keep that in mind. It can help you analyze your situation to see if you are a good candidate for this program.
Doubt as to Liability Offer Program
Next we have an offer due to doubt as to liability. This program is intended to settle disputes between the IRS and the taxpayer as to the proper tax due. Often this program is used to settle disputes regarding tax law. It can, however, also be used if the IRS assesses additional taxes and you did not have a chance to dispute it. For example, the IRS sent you a notice of intent to assess additional taxes but you moved and did not get it.
What is great about this offer program is you don’t have to make any financial disclosures. The IRS has to decide this solely on the merits of your claim. We find this program works great where the taxpayer represented themselves during an audit. Often the auditor just plows ahead with the examination and makes changes that are not warranted. The taxpayer just doesn’t understand the law and may end up with a tax bill much larger than it should be. So this is a way to set things straight.
Effective Tax Administration Offer Program
Finally, we have an effective tax administration offer. This program is designed to settle a tax debt where the taxpayer can full pay but doing so would impose a severe financial hardship. The IRS almost never grants these offers. When it does, the IRS grants relief to taxpayers who are elderly; taxpayers with severe medical issues; or taxpayers who care for others who have medical problems. We mention this program because while it is almost impossible to qualify for, it is still there to help those who have a very sympathetic story. Often if the taxpayer doesn’t qualify for this program, we can find other ways to get tax relief so all is not lost.
I am Maine’s IRS Problem Solver. My firm helps Maine taxpayers in trouble. If you or someone you know in Southern Maine wants more information on how to resolve your unpaid taxes, please feel free to contact me directly at 207-502-7181 or by filing out my contact form. A Maine tax attorney can help you consider your options.
James D. Wade, Esq.
Law Office of James D. Wade
57 Portland Road, Unit 3
Kennebunk, ME 04043