The 10 most important things you need to
know about Offers in Compromise
In order to qualify to file an OIC, you must have filed all of
the tax returns you are required to file; however, you do not
have to make payment on those filed returns. In the case of
self-employed individuals, “compliance” means filing and full
payment for two consecutive quarters.
The settlement procedures depend on how much is collectible from
you. It has nothing to do with how much you owe to the IRS . For
example, a $4 million tax liability could be settled for $1,000
if you are only collectible for $1,000.
For collectibility, the IRS looks at both assets and income.
In analyzing income, the IRS is required to allow you to offset
your income with reasonable and necessary living expenses (e.g.,
housing, food, transportation, heath care, court ordered
payments, child care, etc.).
The IRS will discount assets to their “quick sale” value. In the
case of real estate, cars and other fixed assets, the IRS
discount is at least 20% in almost all cases.
If you disagree with an IRS determination by an Offer
Specialist, the offer can be appealed to an IRS Office of
Appeals. The appeal conference is informal.
If the IRS is actively pursuing a collection action against you
(either a levy, lien or garnishment of wages) , you can appeal
that collection action in what is called a Collection Due
Process Appeal. During that Appeal hearing, you can offer an
Offer in Compromise or an Installment Agreement as an
alternative to the collection action.
All tax liabilities of individuals and corporations can be
compromised, including payroll tax liabilities and tax
liabilities for tax fraud, and any tax liability not
dischargeable in bankruptcy.
The Congress requires the IRS to have a “liberal acceptance”
policy for offers in compromise. The legislative tax policy for
offers-in-compromise is to give taxpayers a “fresh start.” The
IRS adopts that tax policy.
A tax liability can be settled, even if you are collectible for
the full amount of that tax liability, if you can demonstrate
“special circumstances” for those assets or income. This can be
done if the settlement is important for “effective tax
Presented by Alvin Brown and Associates, tax
attorney, formerly with the Office of the Chief Counsel of the IRS.
Call us for all IRS tax issues, problems and emergencies.
(888) 712-7690 - (877) IRS-1172