Eight Things You Need to Know About the IRS Offer in Compromise Program

An offer in compromise is a legal agreement between you and the IRS that settles your tax debt for less than the full amount you owe. It provides you with a path for paying off your tax debt and getting a “fresh start.” If you have unpaid tax debts, here are eight things you need to know about the IRS’s offer in compromise program:

  1. The IRS can settle any civil or criminal tax case via an offer in compromise prior to referral to the Department of Justice for prosecution or defense.
  2. The IRS generally cannot levy or take your assets while your offer in compromise is pending or is in effect unless the collection of tax is in jeopardy.
  3. There are three types of offers that you can make:

    • Doubt as to liability (which is used when there is a genuine dispute as to the amount of or your liability for the tax debt),
    • Doubt as to collectibility (when your assets and income are less than the full amount of the tax liability and you cannot pay the tax in full), and
    • Effective tax administration (if the tax could be collected in full from you, but it would cause economic hardship for you).

    The second and third type of offer has to be submitted with a nonrefundable partial payment. It can be a lump sum payment, which means the offer amount is paid in 5 or fewer monthly payments, or a periodic payment, which means the offer amount is paid over a 6 to 24 months. These payments must be made while the IRS is evaluating the offer.

  4. Penalties and interest continue to accrue on your account while the IRS evaluates the offer.
  5. Your offer may only be accepted for assessed taxes, not future unassessed taxes.
  6. If you have an open bankruptcy case, you are not eligible for an offer in compromise.
  7. The IRS will keep your tax refunds that are payable prior to the time the IRS accepts your offer.

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