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What is an offer in compromise?

On Behalf of | Mar 4, 2021 | Tax Law |

Federal taxes are a regular and unenjoyable occurrence that Americans deal with every year. As spring approaches, individuals who live in the DC metro area pull together their income documents to file their taxes, receive their refunds, or pay their tax bills. For some, paying a hefty tax obligation can be insurmountable given their financial situation.

There are options for individuals who owe the IRS money in taxes but who cannot fully pay their tax bills. One of those options is the offer in compromise. This informational post will introduce readers to the offer in compromise process, but no part of this post should be read as legal or financial advice. Tax attorneys who work with tax debt clients can help interested readers understand this and other options.

Settlement through an offer in compromise

When a person cannot pay their full tax obligation, they may apply for an offer in compromise. An offer in compromise settles an outstanding tax bill for less money than its total. The IRS must approve an application for an offer in compromise before the tax debtor may utilize it; the application process includes the payment of a filing fee as well as a payment toward their outstanding bill.

Before an application is approved, the IRS will consider several factors related to the debtor’s situation. It will look at the debtor’s income, assets, and ability to pay. It will also look at the debtor’s financial obligations and what other expenses they are obligated to cover. A tax attorney can help a debtor present a strong case for an offer in compromise so that their application is well-positioned for its review.

Dealing with an application denial

Not all applications for offers in compromise are approved. When a debtor receives a denial to their application, they can appeal the decision. There is a small window of time in which such an appeal can be made, and it can benefit individuals to seek the counsel of their trusted tax attorneys for help with the appeals process. Offers in compromise are effective for individuals with significant tax debt who cannot pay their obligations in full.