Robert G. Nath
Over 30 Years'
IRS and State Tax
Robert G. Nath, PLLC
1775 Wiehle Avenue
Reston, VA 20190
Offers in Compromise
Why does the IRS ask for so much information when I file an offer in compromise?
The IRS asks for a complete accounting of all of your assets and liabilities because it wants assurance that you can't pay more than you are offering. It will also ask for historical information, such as any transfers of property you have made after the taxes have accrued or in the past 10 years. Like any creditor, the IRS wants the most it can get (the agency calls that concept "Reasonable Collection Potential", or RCP), especially if it is preparing to accept less than the full amount due. In fact, many offers are for 10%, or 20%, of some fraction of the overall taxes due. That's a big hit, so the IRS wants assurance that there is no more you can pay. And, it is entitled to that assurance. So it's usually in your best interest to provide full cooperation.
- Can I offer to pay the tax only, or tax and some interest, and the IRS will forgive penalties?
No. The IRS looks on all of your liabilities - tax, penalty, interest - as being of equal stature. A dollar of penalty is the same as a dollar of tax. So it will require that you list all of your liabilities in the offer, and it will negotiate over how much of the total of everything it believes you can pay.
- Will the IRS “use” the information I have provided in an offer to turn around and seize assets?
It can and sometimes does, if you can't come to agreement, but that's not the initial intent. The IRS asks for that information to see how much you can pay. To use the offer process as a subterfuge for enforced collection would be a violation of law. Still, if your offer does not work out and the Collection Division gets back into the picture, all of that information is in fact available to the revenue officer.
- I've heard you can offer “pennies on the dollar” for an offer in compromise. Is this true?
No. The IRS evaluates every offer in detail. The agency reviews all assets and liabilities to determine your "reasonable collection potential." You can't just throw a few dollars at them and expect an acceptance. That may happen, but only if the numbers justify such a result.
- How do I know if I am eligible for an “offer in compromise?
Check the IRS website, www.irs.gov. It has a full guide on offers in compromise, including "fill-in" forms that the IRS would require if you filed such an offer, and formulas for determining how much to offer. (Note: the IRS does not record this information for later use. Only when you file the formal offer will it officially "take notice" of your application.)
- What types of offers in compromise are available?
There are three:
1) Offer based on "doubt as to collectibility." You agree with all of the tax, penalties, and interest the IRS has assessed, but you contend you cannot pay the full amount within the statute of limitations remaining when you submit the offer. This type of offer is by far the most common.
2) Doubt as to liability. You disagree with the amount the IRS has assessed, and offer to pay a lesser amount based on your claim that you owe less.
3) Effective Tax Administration. You agree with the amounts due, and analysis shows it can be fully paid, but your special circumstances merit a reduction. These circumstances mainly include the argument that if you paid in full, you would be left without the means to support yourself. Thus, offers of this type are often based on advanced age, illness, lack of income, inability to borrow against assets
- Can I pay the offer amount over time?
Yes. This question applies to collectibility and effective tax administration offers. The IRS has three types of "payment plans:" (1) cash offer (paid within 5 months of acceptance); (2) short-term offer (paid within 24 months of acceptance); and (3) "life of the statute" offer (paid over the remainder of the period of limitations).
- My business owes substantial payroll taxes, penalties and interest. Will the IRS compromise those taxes?
Yes, if the facts show the business can't pay the full amount. However, the IRS will look at all business assets, as well as secondary collection sources such as the officers' personal assets, before determining what the "right" compromise number may be. Such an offer takes careful planning and advocacy. The IRS will evaluate what the business can pay to determine the "reasonable collection potential." If that amount is less than what the business owes, and it can be paid, you have yourself an offer in compromise. Simultaneously, the IRS will evaluate whether the officers are liable for the "trust fund recovery penalty," which attempts to collect the withheld taxes and social security/medicare taxes.