IRS Revises Procedures for Offers in Compromise When financially distressed taxpayers find they can’t timely pay their tax debt in full, they can ask the IRS to settle their liability — typically for less than full payment. This is called an offer in compromise. Not all taxpayers qualify. The IRS recently updated its guidance for submitting and processing offers in compromise. Here are the highlights. Making an offer Taxpayers should consider offers in compromise only as a last resort after they have exhausted all other available payment options — including installment agreements. They may ask for one if: 1. Doubt exists that the assessed tax is correct, 2. Doubt exists that the taxpayer could ever pay the full amount due, or 3. The tax is correct and collectible, but the taxpayer can demonstrate that collection would create economic hardship or that collection of the full amount would undermine public confidence in the fair administration of the tax laws. An offer in compromise must list all tax liabilities covered by the offer, the legal grounds for compromise, the amount the taxpayer proposes to pay, payment terms and due dates. Taxpayers can choose to pay a lump sum, monthly payments or a combination of these methods. Longer payment terms require a larger offer amount. Generally, the offer amount should reflect the amount the IRS would expect to recover — whether through litigation or other means — without causing economic hardship. Taxpayers seeking compromise must properly value their assets and accurately report income and living expenses. And they must have filed all required tax returns and can’t be in bankruptcy. Business taxpayers must have timely filed returns and paid any required employment tax for the two quarters preceding filing of the offer and be up-to-date on deposits for the quarter the offer is submitted in. Taxpayers must pay a $150 user fee for offers in compromise. But the IRS waives the fee if an offer is based solely on doubt about liability or if the taxpayer’s income falls below poverty guidelines. The IRS can’t make a levy on a taxpayer’s property: o While an offer in compromise is pending, o For 30 days after rejecting an offer, or o While an appeal is pending. But the IRS suspends the statute of limitations for collection while an offer is pending. Accepting an offer An offer is accepted when the IRS notifies the taxpayer in writing, effective as of the date of the acceptance letter. An acceptance conclusively settles the liability only of the taxpayer making the offer. Other taxpayers who weren’t listed in the offer but are also liable for the tax remain liable. After the IRS accepts an offer, taxpayers must have no further delinquencies and must abide by all agreement terms, including filing all future returns and making all payments when required for five years or until they have paid the offered amount in full — whichever is longer. If a taxpayer doesn’t comply with these requirements, the IRS may declare the offer in compromise in default. Let our attorneys help you explore your options before you contact the IRS. Contact | Legal Disclaimer