IRS Offers in Compromise
Sometimes, a taxpayer’s unpaid tax debt becomes too large for the taxpayer to pay in full. This will not, however, stop the IRS from attempting to collect on the entire debt.
One way to attempt to resolve this situation is by making an Offer in Compromise. Essentially, an Offer in Compromise allows the taxpayer and the IRS an opportunity to settle the outstanding tax liability on terms that require the taxpayer to pay less than he actually owes. IRS collection activity, including placement of levies and liens, is usually frozen while the Offer in Compromise is being negotiated. Collection activity usually remains frozen so long as the taxpayer remains in compliance with the agreed to terms of the Offer.
The Offer in Compromise program is available to individuals and businesses who qualify for the program.
The IRS will usually agree to an Offer in Compromise when it is clear that the taxpayer cannot pay the entire tax liability, even if given several years to do so. To obtain this relief, the taxpayer must make a thorough and extensive disclosure of his financial situation to the IRS. Once the IRS is satisfied that the taxpayer does not and will not have the funds or ability to pay the entire tax liability, it is usually willing to negotiate satisfaction of the liability by payment of a lesser amount.
Additionally, the IRS occasionally agrees to reduce a taxpayer’s tax debt when the taxpayer can prove that he or she is not responsible for some or all of the tax due.