Tuesday, December 14, 2010

What you should know before preparing an Offer in Compromise

You owe the IRS. You can’t afford to pay the IRS. You’re in a bind.

The good news is you may qualify for the Offer in Compromise program through the IRS.

What is an Offer in Compromise?

An Offer in Compromise is an agreement between the taxpayer and the IRS that resolves the taxpayer’s debt for less than what is actually owed. Yes, the IRS does have the authority to “compromise” or settle tax liabilities, under certain financial circumstances. The most common circumstance is when it is unlikely the taxpayer will ever be able to pay the liability in full, and the amount offered reflects what the taxpayer can realistically pay.

The Offer in Compromise is a win-win situation for all involved – the taxpayer and the IRS. The taxpayer can finally breathe a sigh of relief knowing their tax debt has been taken care of. The IRS can find relief in knowing, in more cases than not, they collected more on the debt with an Offer in Compromise than they would have without it. Also, the taxpayer is more likely to stay in compliance when it comes to filing and paying future taxes as part of the condition of the Offer in Compromise agreement.

In fact, according to the Taxpayer Advocate Service 2007 Annual Report to Congress, the IRS collected 17 cents for every $1 owed through accepted Offers in Compromise in fiscal year 2007. In the past, IRS research shows they collected on 13 cents for every $1 owed on two-year-old debts and virtually nothing on debts three or more years old.

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