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 unexpected
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 info@irsmedic.com.
Below is the Internal Revenue Manual section which authorizes the IRS to compromise an accepted Offer in Compromise.
Internal Revenue Manual
Compromise of a Compromise
-
In cases where the taxpayer is unable to pay the balance of an accepted offer, the balance of a non-rebate erroneously issued refund, or the balance of the contingent liability under the terms of a collateral agreement, and the investigation reveals that extreme hardship or other circumstances exist which would justify that a default is not in the best interest of the government, then the Service may:
-
Adjust the payment terms of the offer,
-
Formally compromise the existing compromise, or
-
Obtain managerial approval to settle the offer for the amount already paid and not default the offer
-
-
A Form 656 is not required to make the proposal, and there is no other standard form for such a proposal. The proposal should be submitted in letter format and addressed to the Commissioner of the Internal Revenue. Generally, IRM Exhibit 5.8.9-2 may be used for this purpose.
-
If Appeals initially accepted the offer, Appeals will consider the taxpayer’s “compromise of a compromise” proposal.
-
Further substantive information that is provided to Appeals by the taxpayer should be referred by the hearing officer via an ARI request to the Collection Drop Point manager that originally investigated the offer. It is recommended to send the ARI request by fax or e-mail to the Drop Point Manager.
Note:
For offers investigated and accepted by Appeals prior to policy changes effective August 11, 2014, in which an offer on an offer proposal is submitted requiring financial verification, the hearing officer will initiate an ARI to the appropriate Collection Drop Point manager based on the taxpayer’s location.
-
In Appeals, Compromise of a Compromise cases will generally be assigned to Brookhaven Service Center Appeals for considerations but may also be assigned as follows:
-
Proposals received on offers originally accepted by a field Appeals office may be assigned to the same Appeals team that originally accepted the offer.
-
Proposals received on field and campus CDP offers that are subject to retained jurisdiction may be assigned to the field or campus team that accepted the CDP offer.
-
-
For information on CDP hearings on terminated OICs, refer to IRM 8.22.
-
When working a potential default case and the hearing officer becomes aware of the death of a taxpayer, it must be determined whether there is an estate. If this determination was not made prior to the potential default offer case being assigned to Appeals, an ARI may be needed. The ARI should be issued to Collection Advisory to determine if there is an estate and to request that Collection Advisory file a proof of claim for the balance owed on the offer. The hearing officer will hold the potential default case open until Collection Advisory responds to the ARI. If there is no estate, the hearing officer will simply close out the offer case as satisfied following procedures in this section.
-
If the taxpayer is deceased, the hearing officer will verify the TC 540 was input, and if it was not, request that APS manually input the TC 540.
-
When making an acceptance recommendation for a compromise of a compromise proposal, the case must be forwarded to Counsel for a legal sufficiency review if the original offer was subject to that review. The documents to forward to Counsel include:
-
The taxpayer's written proposal for the compromise of a compromise
-
A fully completed Form 7249 that reflects the new terms of acceptance
-
Redacted or sanitized transcripts
-
Other documentation from the compromise of a compromise investigation
Note:
Do not include the administrative file from the initial offer acceptance unless it is readily available.
-
-
To properly record the acceptance, prepare a redacted Form 7249 and include redacted transcripts to forward to the appropriate public inspection file office.
-
See IRM 8.23.4.6, Compromise of a Compromise, for final procedures to close out such cases.
