Offer in Compromise — 12 Facts for Arizona Taxpayers

    1.  Tax Returns

    All tax returns that are required to be filed must be filed.  They don’t have to be paid (although some payments toward the account may help).

    2.  The amount of the settlement isn’t about debt amount 

    The IRS looks at income, budget and assets to determine the amount that will be the settlement.  The debt could be $100,000.00 or $1,000,000.00, the settlement should be the same.

    3.  The IRS can use a budget that isn’t your actual budget in determining settlement amount

    When the IRS looks at income and budget it can subtract from the average income a budget that is considered reasonable and necessary.  This number is based on averages that the IRS has arrived at presumably from the otherwise private info we all provide each year.  This budget, at least to start, is rarely your actual budget.

    4.  The IRS will reduce value of property

    They will reduce the value of assets to  “quick sale” value, which is usually 20%.  This means that when calculating your offer amount most assets will be considered worth 20% less than market value.

    5.  You can appeal 

    If the IRS determines that the offer in compromise number you propose is no good, you can appeal the decision.  The appeals hearing is “informal”  and you can’t appeal it further if the offer wasn’t filed in relation to a collection due process appeal request.

    6.  Collection Due Process Appeal –  Allows you to make offer request and stop collection

    The collection due process appeal request is made after you recieve a final notice of intent levy, lien or garnish.  This stops collection activity on the year or years in question and allows you to propose an offer in compromise or some other alternative.  It is a smart thing to do because as mentioned above, the appeal hearing can be appealed further to Tax Court.

    7.  All Types of Tax Debt can be compromised

    All tax debt be it individual or business can be compromised.  This includes debt based on substitute tax returns prepared by the IRS.

    8.   Effective Tax Administration

    The IRS doesn’t always have to compromise a tax debt just based on assets, income and budget.  It can also compromise the debt if taxpayer has “special circumstances”.  These may be possible even if the taxpayer can afford to pay it.

    9.  Bankruptcy may play a role

    If you have tax debt that could legally be “wiped” away in a bankruptcy and you are otherwise a candidate for bankruptcy,  this may be important in convincing the IRS to settle the tax debt.

    10.  The Offer can be submitted anytime

    The offer can be submitted anytime after the tax is assessed unlike in bankruptcy which requires a waiting period for discharge.

    11.  Debt can be compromised before assessment

    The tax debt can be compromised even before the assessment in an audit situation.  Before agreeing to an amount with the IRS auditor, the offer might be used to determine the amount of the accepted offer and then compared to the costs of tax court ltigation for the IRS and the taxpayer.

    12.  An Offer can be filed more than once

    An offer in compromise can be filed more than once.   Each filing probably makes success more difficult but a poorly done and rejected Offer can be reworked and resubmitted.