Offer in Compromise

Version 1: The IRS has the option to consider a compromise if there is uncertainty regarding the taxpayer’s liability. This compromise is only applicable when there is a genuine disagreement about the correct amount or existence of the tax debt according to the law. It is important to note that if taxes were straightforward, tax advisors would not have a thriving business. There are instances where both the taxpayer and the IRS may question the liability, and in such cases, the IRS may allow a compromise to move forward.

Version 2: Another circumstance in which the IRS may accept a compromise is when there is doubt about the taxpayer’s ability to fully pay the amount owed. This doubt arises when the taxpayer’s income and assets are insufficient to cover the entire tax liability. A classic example where a compromise could be sought is when an individual or business experiences a highly profitable year followed by a financially challenging one. The tax obligation arrives at a time when it is least affordable, with no assets to sell or income to meet the owed amount.

Version 3: Additionally, the IRS may consider accepting a compromise based on effective tax administration. In such cases, an offer could be approved if there is no doubt that the tax debt is legally owed and can be collected in full. However, requiring full payment may be deemed inequitable or create an economic hardship due to exceptional circumstances. For instance, a business may be forced to sell essential equipment or even shut down operations to fulfill their tax liability. In such situations, an offer in compromise could potentially save the business.