IRS Offer in Compromise - What's not to Like

The IRS Offer in Compromise program is an Internal Revenue Service (IRS) program under 26 U.S.C. § 7122 which allows qualified individuals with an unpaid tax debt to negotiate a settled amount that is less than the total owed to clear the debt.

The IRS Offer in Compromise package will determine if the taxpayer is eligible for the IRS offer in compromise program or not. The objective of the IRS Offer in Compromise program is to accept a settlement compromise when acceptance is in the best interests of both the taxpayer and the government and promotes voluntary compliance with all future payment and filing requirements.

Get Your Dancing Shoes On - IRS Offer in Compromise

You will feel like getting up and start dancing when you settle your income tax debt. Contact the best IRS team at Flat Fee Tax Service, Inc. and find out exactly what your IRS Offer in Compromise options are and what you can expect. Are you ready to dance?



At least one of three conditions must be met to qualify a taxpayer for consideration of an IRS Offer in Compromise:

1. Doubt as to Liability — Debtor can show reason for doubt that the assessed tax liability is correct

2. Doubt as to Collectibility — Debtor can show that the debt is likely uncollectable in full by the IRS under any circumstances

3.Effective Tax Administration — Debtor does not contest liability or collectibility but can demonstrate extenuating or special circumstances that the collection of the debt would "create an economic hardship or would be unfair and inequitable." This IRS Offer in Compromise program is available for any taxpayer but is primarily used by individuals that are elderly, disabled or have special extenuating circumstances.

Doubt as to Collectibility is the only IRS Offer in Compromise condition you should be concerned with unless you are elderly and have assets (home equity):

Doubt as to Collectibility means that the taxpayer will never be able to fully pay their tax debt. The IRS will consider a settlement compromise based on the following formula:

Settlement Amount: Your monthly disposable income times a number of months plus the net realizable equity in the taxpayer's assets.

Disposable income is monthly income minus allowable monthly expenses. It is important to recognize that the IRS will not allow all expenses the taxpayer may actually have. Common disallowed expenses are college tuition payments for a dependent and credit card payments (disallowed since they represent unsecured debt).

The number of months over which disposable income must be calculated into the offer amount is based on the smaller of the number of months remaining until the Collection Statute Expiration Date for the tax debt or either 6 or 24 months, depending on the payment option for your IRS Offer in Compromise which the applicant is selecting.

Net realizable equity in assets is the quick sale value of the asset (often 80% of Fair Market Value (FMV)) minus any liabilities which are secured by the asset (e.g., a loan). As an example, if a taxpayer has a home worth $100,000 and owes $50,000 on the home, the IRS will calculate the net realizable equity in the asset as follows: ($100,000 x .80) - $50,000 = $30,000. The IRS expects, in this example, that the $30,000 will be included in the settlement offer.

If a taxpayer believes he or she qualifies, the taxpayer completes a financial statement on a form provided by the Internal Revenue Service. Wage earners and self-employed individuals use Form 433-A. Form 433-B is for Offers involving all other business types. These financial statements identify all assets and liabilities as well as disposable income.

Liabilities Eligible for Compromise:

An IRS Offer in Compromise can be submitted to settle any federal tax liability incurred under the Internal Revenue Code. This includes both business taxes (payroll, income, etc.) and individual taxes (income, trust fund recovery penalties, etc.).

An IRS Offer in Compromise can only settle tax debt that has already been assessed. Income tax debt is considered assessed on the date the return is due (see tax day), or, if the return is filed after the due date, on the day the tax return is received. If a tax debt has not yet been assessed, it cannot be included in an IRS Offer in Compromise. Certain taxes, however, are due throughout the year. And those taxes can be included in an IRS Offer in Compromise.

IRS Offer in Compromise: Partial payment:

Effective July 15, 2006, changes were made to the IRS Offer in Compromise program requiring that an up-front twenty percent, non-refundable payment plus US$186 be submitted along with the IRS Offer of Compromise in the case of a cash offer.


An IRS Offer in Compromise submitted without the required fees is subject to rejections without appeal. After the IRS in Compromise is submitted, the IRS has two years to make a decision. If the decision is not reached by that time, then the settlement offer is automatically accepted.

Under the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA 2005) if a taxpayer chooses to make payments over time, i.e. monthly, the taxpayer must include with the IRS Offer in Compromise the first month's payment. The taxpayer is not required to submit the 20%, which applies only to the lump sum payment option. Then during the time that the settlement offer is being considered by the IRS, the taxpayer must keep making the monthly payments to keep the offer current. If the taxpayer fails to make the payments, the offer will be returned to the taxpayer.

In the case of both the $150 application fee and either the 20% down payment or the monthly payments, a low-income taxpayer may be exempt from both. The taxpayer should review the Form 656A to determine whether these fees and payments apply to them.

Effect of an IRS Offer in Compromise on IRS levy or federal tax lien:

An IRS Offer in Compromise will have no immediate effect upon a federal tax lien. The federal tax lien will remain in effect until the settlement offer is accepted by the IRS and the full amount of the IRS Offer in Compromise has been paid in full. Once the offered settlement has been paid, the taxpayer should request that the IRS remove the tax lien.

An IRS Offer in Compromise will stop an IRS levy under section 301.7122(g)(1) of the US Federal Tax Regulations. That regulation states that the IRS will not levy upon a taxpayer's property while a valid IRS Offer in Compromise (an offer that has been accepted for processing) is pending and, if rejected, for thirty days after the rejection. If the taxpayer appeals the rejection, the IRS cannot levy while the appeals process is ongoing. If an IRS levy is in place when the offer is submitted, it is not automatically released.



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San Diego, CA 92103

Phone. 800-589-3078