| There are lots and lots of offer in compromise | | | | that make collection of the full liability detrimental |
| (OIC) companies advertising to get your money | | | | to voluntary compliance by taxpayers and |
| and in return have you pay "pennies on the dollar" | | | | compromise of the liability does not undermine |
| to resolve your tax liability. This post reviews the | | | | compliance by taxpayers with the tax laws. The |
| real facts underlying how the compromise | | | | Examination Division handles these types of |
| process really works. First we'll take a look at | | | | offers. However, if the offer is also based on |
| getting your offer based on economic hardship. | | | | doubt as to collectibility, the Collection Division |
| We'll examine just what this means in the OIC | | | | handles the OIC first. Factors that support a |
| arena. | | | | determination that offer in compromise would not |
| Economic hardship for purposes of offer in | | | | undermine compliance with the tax laws by |
| compromise exists when payment of the tax will | | | | taxpayers include: |
| cause an individual taxpayer to be unable to pay | | | | - the taxpayer does not have a history of |
| his reasonable basic living expenses. This | | | | noncompliance with the filing and payment |
| determination varies according to the unique | | | | requirements of the tax laws; |
| circumstances of the taxpayer. However, unique | | | | - the taxpayer has not taken deliberate actions to |
| circumstances do not include the maintenance of | | | | avoid the payment of taxes; and |
| an affluent or luxurious standard of living. Some of | | | | - the taxpayer has not encouraged others to |
| the OIC living standards taken into account are: | | | | refuse to comply with the tax laws. |
| - whether the offering taxpayer is incapable of | | | | The existence of these factors does not |
| earning a living because of a long term illness, | | | | automatically mean that the IRS will support an |
| medical condition or disability; | | | | offer. Other factors that may be examined |
| - whether selling the taxpayer's assets to pay | | | | include the cause of delinquency, the length of |
| outstanding tax liabilities would make the taxpayer | | | | noncompliance and efforts to resolve the |
| unable to meet basic living expenses; and | | | | noncompliance. The IRS generally reviews the last |
| - although the taxpayer has some assets, | | | | three to five years for compliance. This type of |
| whether the taxpayer can borrow against the | | | | offer in compromise may be used when |
| equity in those assets and whether forced sale of | | | | taxpayers are inadvertently subject to substantial |
| the assets would have adverse consequences | | | | penalties and interest. In such OIC, the IRS |
| that make enforced collection unlikely. | | | | generally expects that the amount of the offer |
| An offer in compromise may be entered into if, | | | | would cover the amount of the tax liability, |
| regardless of the taxpayer's financial | | | | exclusive of penalties and interest. |
| circumstances, exceptional circumstances exist | | | | Expert help with offers in compromise is available. |