QUESTION:

I owe the IRS a lot of taxes and penalties. The IRS says that I have too many assets and my only income is from a pension, but the IRS believes it is too much income to have an offer in compromise accepted. I am disabled due to an illness and need my income to live on. Is there a way to submit the offer in compromise for a personal hardship?

ANSWER:

Congress has established an alternative to the traditional offers based on doubt as to collectibility and doubt as to liability when an offer should be based on effective tax administration. The IRS is authorized to accept an offer in compromise based on effective tax administration when the collection of the full liability would create a hardship, exceptional circumstances exist that the collection of the full liability would be detrimental to voluntary compliance by taxpayers, and compromise of the liability would not undermine compliance by other taxpayers.

The IRS considers several factors in determining whether to accept an offer on this basis. All of the factors are weighed, but none are conclusive for acceptance or denial. Some of the factors include: the taxpayer’s inability to work due to disability, liquidation of taxpayer’s assets would prevent the taxpayer from being able to meet basic living expenses, or the sale of assets would have adverse consequences and more than likely, the collection activity would be unlikely.

It is also helpful when you can show that you have never had a problem filing and paying your taxes in the past, you have not deliberately tried to avoid paying these taxes, and you have not encouraged others not to file their taxes.