IRS Offer in Compromise

An Offer in Compromise may allow you to resolve your IRS debts for an amount substantially less than you owe. The focus is not on the amount of the liability, but on how much you can afford to pay. Even the IRS can’t get blood out of a stone, so if the proper procedures are followed it will settle on the basis of “doubt as to collectibility.” (Less frequently offers can be based on “doubt as to liability,” or in the interest of “effective tax administration.”) A side benefit is that while the IRS is considering your Offer in Compromise proposal, it is legally prohibited from pursuing collection activity against you. In other words, while the Offer is in the pipeline the IRS cannot seize assets or garnish your wages.


irs tax collection law

irs tax collection law


While the IRS is trying to remake its image and to become “user-friendly,” the Offer in Compromise program remains difficult and frustrating, and it is getting worse all the time. Remember, these are the same folks who brought you that simple, easy to understand Form 1040. Most people do not have the experience or the knowledge of IRS collection policies and procedures to be able to assemble and effectively negotiate an Offer in Compromise. As a result, the IRS turns back most Offers as “unprocessable” before they even get to the merits of the offer proposal. And of those deemed processable, most are rejected. Accordingly, it is very important to do it right the first time.

Securing information

After filing a Power Of Attorney form with the IRS, we typically secure “transcripts” of your accounts to verify that your tax returns, withholding credits and payments have been properly posted, and to determine whether the statute of limitations on collections is near expiration. We will also need to have discussions with you to understand the details of your financial circumstances. This is essential so that we can properly prepare the necessary IRS Collection Information Statement (Form 433-A) on which the IRS’s evaluation of the Offer in Compromise is based. You will have several opportunities to review the Collection Information Statement and supporting documents and to provide any additional information or materials needed to make the offer package complete and correct before it is sent to the IRS.

There is an opportunity for vigorous and creative advocacy in presenting financial information to the IRS. The IRS’s policies “allow” certain kinds of expenditures in computing a taxpayer’s ability to pay, and thus whether an offer is acceptable, but only if the taxpayer fully documents the need for the expenditure in question. Knowing the rules and the extent of the IRS’s flexibility on these issues is crucial to obtaining the best possible result. We will work with you to present your financial information in the best possible light, and to thus increase the chances of successfully compromising your tax debts.

Filing the Offer in Compromise

Once the Offer in Compromise and the related Collection Information Statement and supporting documents are assembled and properly organized, the Offer package is filed with the appropriate IRS office. In August 2001, the IRS began “centralized processing” of certain Offers at the Brookhaven Service Center in New York, and at the Memphis Service Center in Tennessee. Other Offers, typically involving more complex situations, are processed in the local IRS field offices. In theory, the Offers handled by the two Service Centers are supposed to be reviewed more quickly, but the process is still painfully slow, and often updated financial information must be submitted when the Offer package is finally reviewed by the Service. Upon receiving questions or a request for updated information, we would respond to the IRS by gathering and sending whatever new data is needed, or answering any questions the Offer examiner may have. (Please note that about 25% of Offers are rejected simply because taxpayers fail to respond to the IRS’s requests for additional information.)

As noted above, the IRS is precluded from taking levy and certain collection actions while the Offer in Compromise is pending. This can free you from the threat of IRS seizures or levies for a year or more, given the length of time it takes the IRS to process Offers these days (although a Notice of Federal Tax Lien can still be filed even while the Offer proposal is pending).  During the time the Offer in Compromise package is being assembled and submitted, and throughout the process of review, negotiation and possible appeal, we would handle all correspondence and discussions with the IRS. You would not have to meet with an IRS Revenue Officer at any time, or respond to any notices or correspondence (except to forward copies to us).

Paying the Compromise Amount

The filing fee and first month installment is paid to the IRS when the Offer in Compromise is filed. If taxpayer is offering a lump-sum payment, then typically that payment of the amount offered would occur 90 days after we are notified that the Offer has been accepted. In the alternative, it is possible to pay the offered amount in monthly installments over two years with no additional interest.  As soon as you pay the offered amount, the IRS will release any previously filed tax liens. This is crucial to repairing your credit or permitting you to sell real estate or other assets.

Offer Mills

Some representation companies specialize in submitting quick and dirty offers that have little chance of success, merely to gum up the IRS machine. These offers are typically poorly prepared and lack the required supporting documentation. Some of these folks are merely incompetent and others are crooks plain and simple. The IRS is aggressively clamping down on these “offer mills.” Don’t waste your money.