(1) How do I know if I am eligible for an Offer in Compromise?
The IRS may legally compromise your tax debt for one of the following reasons:
(a) Doubt as to Liability (DATL) - Doubt exists that the assessed tax is correct. The Offer in Compromise program also allows taxpayers that do not agree that they owe the tax or feel that the tax has been incorrectly calculated, an opportunity to file a DATL Offer in Compromise and have their tax liabilities reconsidered.
(b) Doubt as to Collectability (DATC) – Doubt exists that the taxpayer could ever pay the full amount of tax owed. A DATC Offer in Compromise is negotiated on the basis of a taxpayer’s inability to pay and takes into account the taxpayer's current financial position including the taxpayer’s equity in assets.
(c) Effective Tax Administration (ETA) – If there is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, the IRS may consider an OIC under exceptional circumstances in which a taxpayer demonstrates that the collection of the tax would create an economic hardship or would be unfair and inequitable. This includes situations where compelling public policy or equity considerations provide sufficient basis for compromise.
In submitting an offer based on Effective Tax Administration, the taxpayer needs to provide extensive narrative of the special and extraordinary circumstances along with the rest of the offer in compromise documentation. Right now, extraordinary circumstances would mean some sort of life and death situation, such as a serious medical condition.
The taxpayer bears the burden of proof to show their Offer In Compromise qualifies for public policy or equity considerations. They must show that their circumstances are compelling enough to justify acceptance of their Offer In Compromise compared to other taxpayers in similar circumstances.
(2) When does a Collection Information Statement need to be completed?
The Collection Information Statement (CIS Form 433-A) is commonly used by the IRS to gather the necessary information to determine the taxpayer’s ability to pay. The CIS is the taxpayer’s financial statement and disclosure of personal information including assets, income and expenses.
The forms used are Form 433-A for individuals and Form 433-B for businesses. Failure to submit these documents will cause considerable delay in the process.
Collection Information Statement(s) are required for Doubt as to Collectability and Effective Tax Administration Offer In Compromises, and Doubt as to Liability offers involving Trust Fund Recovery Penalty assessments.
(3) If I qualify for an Installment Agreement, can I still submit an Offer In Compromise?
If a tax liability can be paid in a lump sum or through an installment agreement, taxpayers will not be considered for an Offer In Compromise.
If an Offer In Compromise is received, it will be rejected with appeal rights. The only exception is if a taxpayer requests an Offer In Compromise under the Effective Tax Administration provision.
(4) The IRS recently levied my bank account. Will the levy proceeds be returned if I file an Offer In Compromise?
The IRS will keep all payments and credits made, received or applied to the total original tax liability before the Offer In Compromise was submitted.
The IRS may also keep any proceeds from a levy that was served prior to the submission of an Offer In Compromise, but which were not received at the time the Offer In Compromise was submitted.
(5) Can I file an Offer In Compromise to delay collection action?
Once it is determined an Offer In Compromise was filed solely to hinder and/or delay collection actions, the IRS will return the Offer In Compromise without any further consideration.
Taxpayers will not be afforded the right to appeal this decision.
(6) What happens to my Offer In Compromise application fee if my offer is accepted or declined?
The application fee for submitting an Offer In Compromise is $150. The $150 (and the 20% deposit or the periodic payment) is retained until the IRS determines whether the Offer In Compromise can be accepted for processing. The 20% deposit will be applied against the amount of the offer and not be refunded to the taxpayer. However, you may designate to what tax period you want the 20% applied.
Federal agencies are authorized to establish charges for services provided by the agency, called "user fees". The U.S. Office of Management and Budget encourages agencies to implement these fees to recover the cost of providing special services to some recipients that others do not use.
The IRS has established a user fee that will recover part of the cost of processing and reviewing Offer In Compromise requests. The IRS has chosen to call it an "application fee" because the fee is required when an Offer In Compromise application is submitted for consideration.
If your Offer In Compromise is not accepted, the application fee, the 20% lump sum deposit and the periodic payment amount will be retained by the IRS. This includes situations where:
(a) The taxpayer’s initial Offer In Compromise amount is too low - based on the IRS evaluation of the taxpayer's financial condition - and the taxpayer is given the opportunity to increase it.
(b) The taxpayer does not increase the Offer In Compromise amount, or show special circumstances, and the IRS rejects the Offer In Compromise.
(c) The taxpayer fails to submit additional financial documents to assist in the IRS review.
(d) The taxpayer fails to respond, and/or submit the requested information, and the Offer In Compromise is returned without further consideration.
(e) The taxpayer chooses to withdraw the Offer in Compromise.
