Offer in Compromise

An offer in compromise is one of the potential options available to a taxpayer to settle an unpaid tax liability with the IRS. It basically an opportunity to settle the tax liability for less than the full amount of tax, interest and penalties due. It is based on the taxpayer’s ability to pay (rather than on any fixed percentage of the debt) and can be a very favorable option to those who have large tax debts but few assets and only modest income. It is not, generally, something wealthier individuals or businesses can take advantage of.

The thing to remember is that it is a formal procedure that requires, among other things, the preparation of detailed financial statements and the provision of records and documents to substantiate assets, liabilities, income and expenses. There are also technical rules related to the procedure, including the use of national and local standards for expense computation, the use of certain percentages in valuation of the assets, the computation of net disposable income for a certain duration, etc. It is recommended that competent counsel be sought before attempting to submit or negotiate an offer in compromise.