An offer in compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances.

The offer in compromise is still a relatively new IRS instrument created in 1992 by Section 7122 of the Tax Code. The two primary grounds under which an offer in compromise can be successfully negotiated with the IRS are: “doubt as to collectability” (doubt exists that the taxpayer could ever pay the full amount of tax owed), or “doubt as to liability” (doubt exists that the assessed tax is correct). There is a more recent third ground for acceptance, “effective tax administration” (e.g. the IRS wants to get as much as they can, and they may potentially think that 12 cents on the dollar is as good as they can get from a taxpayer). For an Offer in Compromise to be accepted, however, the taxpayer has the burden of proof that they either have no possible means of paying the tax or that they do not actually owe the tax. The primary determinant on “doubt as to collectability” is based on a taxpayer’s personal financial profile; including income, expenses, and assets. The IRS sets strict guidelines for income, allowable expenses (categorized as: Living, Housing, Transport), and available equity in owned assets.

An additional benefit of submitting an offer in compromise is that IRS Restructuring Act prohibits the IRS from collecting a tax liability by levy during the period in which the Offer is being processed, or 30 days following rejection of an offer, or during the appeal of an offer in compromise. This window of non-collection is frequently a respite for our clients to avoid any IRS collection actions, thereby securing additional time for clients to pay and prevents the IRS from seizing any assets in the interim.

If accepted, payment terms for an Offer in Compromise can be in one of two methods: cash (typically 20% with submission of offer and 80% within 90 days of acceptance), OR short-term deferred payment (24 monthly payments starting with submission of offer).

Our Tax Attorneys have extensive expertise with planning, preparing, and negotiating Offers in Compromise. If you qualify, an Offer in Compromise is frequently the ideal solution for resolving your delinquent tax liability. In the last published IRS statistics, the IRS reports that the average discount on accepted Offers was 88% (only 12 cents on the dollar was paid by Americans with accepted offer in compromises), and that the average acceptance rate was 47.6%. The experienced team of Tax Attorneys and Tax Specialists at Federal Tax Relief specialize in the Offer in Compromise program and will work hard to see if our clients qualify for an offer in compromise.