Back to the Basics: What is an Offer in Compromise
An “offer” is defined by Merriam-Webster’s online dictionary (http://www.m-w.com) as “a presenting of something for acceptance” and “compromise” is defined as “a settlement of differences by arbitration or by consent reached by mutual concessions.” When you put those two definitions together, you do not really get the true meaning of what an IRS Offer in Compromise (OIC) is, but you get pretty close. An IRS OIC is a written agreement between the taxpayer and the Internal Revenue Service (IRS) that allows the taxpayer to pay a reduced amount in full satisfaction of his IRS tax liability, penalties and interest.
The IRS has several types of offers in compromise based on the type of situation you find yourself in, you may qualify for more than one, however, the IRS is only able to grant your OIC based on one of the grounds. The grounds for Offers in Compromise are based on: (1) doubt as to liability, (2) doubt as to collectability, and (3) for effective tax administration. An offer based on doubt as to liability would be filed when the taxpayer believes he does not owe the tax. An offer in compromise based on effective tax administration would be filed when, even though the taxpayer has assets and/or income to full pay their tax liability, but there is a good reason to allow them to settle their tax liability for less than the full amount owed. Finally, we will consider the offer in compromise based on doubt as to collectability in much more detail in this manuscript. The offer in compromise based on doubt as to collectability is filed when there is no contention that the tax is owed, however the taxpayer does not have the assets or future income to full pay the liability.
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