What’s an Offer in Compromise to the IRS?

It’s very easy for your tax debt to get out of control, especially if you’re self-employed or own a small business. It can be difficult to estimate your taxes correctly from one year to the next, and that can put you behind.

Dealing with tax debt is stressful, especially if you can’t pay the bill. Fortunately, the Internal Revenue Service (IRS) allows some people to resolve their tax liabilities through something known as an Offer in Compromise (OIC).

Can anyone make an Offer in Compromise?

An Offer in Compromise is an IRS program that permits eligible taxpayers to settle their taxes for less than the full bill. Not everyone qualifies for an Offer in Compromise, but it is ideally suited to a lot of self-employed people or small business owners, including partnerships and limited liability corporations (LLCs).

However, the IRS carefully assesses each case on its own merits. Generally, the IRS considers three primary questions when deciding if someone is eligible for an OIC:

• Is there doubt about their tax liability? If there is a legitimate question about whether the assessed tax liability is correct, the IRS may consider an OIC. There are far more gray areas in tax law than many people realize.
• Is there doubt that the bill can be collected? If the taxpayer can prove that they are unable to pay the full tax debt due to the financial hardship they either currently have or would have, an OIC may be a viable option.
• Is it an effective method of tax administration? In some cases, the IRS may decide that a combination of factors makes it more effective to accept an OIC than to try to litigate an issue or struggle to collect.

When you have tax troubles, there are probably a lot more options out there than you realize. Learning more about potential solutions for your tax issues can help you find a path forward.