Imagine you own a business hitting hard times, and you let a tax bill run up until it gets massive…let’s say $200,000. And worse, your ability to repay the IRS, at least right now, is not really all that great. So you wonder if the IRS Offer in Compromise program is legitimate. You find out it is. You run through your calculations, prepare the required paperwork, supporting documents and submit an Offer in Compromise of $10,000. Months later the IRS accepts your Offer! The terms of the Offer require you to pay the $10,000 in 12 months and then that's it — your IRS problem is solved.
The 12 months come and for whatever reason, you can't get that $10,000 that you planned on. Maybe your finances took another hit, or maybe the person you were going to borrow the money from no longer has it. The simple fact is that you are a far cry away from coming up with the $10,000 as agreed.
What do you do about an Offer in Compromise you can't afford?
- Do you allow the Offer in Compromise to default, go back into collections and try something else?
- Or, can you renegotiate the Offer in Compromise to what you can now afford? That is, can you compromise your Offer in Compromise?
Yes! You can compromise an Offer in Compromise by proving your ability to pay the original offer amount, through no fault of your own, is no longer there. If you can show that, then the IRS is allowed to accept even less than they were originally going to accept.
Why would the IRS agree to take yet another haircut on a tax bill?
The main beneficiary of the IRS's Offer in Compromise program is not you, it's the IRS!
Years ago, the IRS had six years to collect a tax debt that was owed from the date of assessment. The IRS was fine with this short six-year period because their own analysis concluded that if they were not fully paid a tax debt within two years, the chances of them getting paid in full became minuscule.
Certain debt becomes worthless after it gets too old. There is nothing to get so they simply write it off, as it's are more trouble than it's worth. The IRS looks at unpaid taxes very much the same way. They weren't going to get paid anyway, so why bother putting resources to the debt least likely to be repaid? Instead, the IRS wants to put resources where there is more likely a chance of full repayment, that is, newer tax debts.
Then, Congress decided that if they extended the time to collect a tax debt from six years to ten years, somehow that would mean more money. Of course, it didn’t work that way. All it did was force the IRS to waste resources on really old tax debts. The IRS Offer in Compromise program benefits the IRS because they get something for a tax debt that they were likely to collect little or nothing on. That is why it exists.
It is our experience that taxpayers who think they can’t settle taxes with an Offer in Compromise can, and those that think they can, can’t. We recommend that you contact us for a free evaluation to go over what sort of options would work best to settle your IRS tax debt. Any information you share with us will be kept confidential. Call us at 888-727-8796 or email email@example.com.
Below is the Internal Revenue Manual section which authorizes the IRS to compromise an accepted Offer in Compromise.
Internal Revenue Manual