What Is the Offer in Compromise Program?

The offer in compromise program is offered by the IRS in order to help individuals pay their tax debts. This program allows individuals to settle their tax debts for less than they owe. Here are the basics of the offer in compromise program.

Offer in Compromise

An offer in compromise is an offer that is made by a taxpayer and accepted by the IRS. This is an agreement that allows the taxpayer to pay an amount that is less than the taxes that were incurred. The IRS does not accept every offer that is made to them for settling a tax debt. Typically, the IRS will consider accepting the offer only if it is equal to the RCP, or reasonable collection potential. The RCP is a number that the IRS comes up with in order to determine what would be a reasonable amount of money that they think they can collect from an individual. If the individual offers too little, the IRS is not going to accept the offer.

Types of Offers in Compromise

There are three different types of offers in compromise that you could potentially make with the IRS. In order for your offer to be accepted, it has to fall into one of these three categories. 

The first type of offer is referred to as a doubt as to collectibility. With this type of offer in compromise, the IRS has to believe that the individual could never afford to pay for the debt that is owed within the statute of limitations. If this is the case, the IRS is going to accept what is affordable for that person.

Another type of offer is referred to as a doubt of liability. This means that there is a question as to whether this individual actually owes the amount of money that is being billed. This happens when the taxpayer comes up with new evidence or there is a potential mistake made by the IRS.

The last type is known as effective tax administration. With this type of offer, the IRS is not going to charge the tax bill if it is considered unfair. In this case, if the individual that owes the tax bill is going to be significantly affected by paying the bill, the IRS might agree to taking a lesser amount.

Changes in 2006

In 2006, some changes were made to the rules of the offer in compromise program. With these new rules, taxpayers that are going to submit an offer in compromise have to also submit a 20 percent nonrefundable payment. Therefore, in order to get your offer in compromise evaluated, you have to be willing to provide some money to the IRS at the same time.

Liens

If you have a tax lien, the offer in compromise is not going to affect it. In order to get the tax lien removed, the offer has to be accepted, and then you have to ask to have it removed.

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