offer in compromise doubt as to liability

Episode 48:  In this episode, Timalyn explains an option some people have in resolving their tax debt.  This option is referred to as an offer in compromise.  Understand that not every tax payer qualifies for this, but you hear commercials about it all the time.

Note:  This is a complex topic and deserves more than a quick, 15-minute episode to fully explain it.  The plan is to cover this topic in 2 separate episodes.  The next episode will explain how you qualify for an offer in compromise, while this episode explains what an offer in compromise is.

While not every taxpayer will qualify for the offer in compromise, the vast majority (90%+) would actually qualify for an installment agreement (Episode 10).  This may be the better option for many people. 

An important reason Timalyn is covering this topic is so that you can understand “WHY” you may or may not meet the criteria for an offer in compromise option.  Regardless of what you may have seen on the Internet, filing on your own is not something you should do, if you’re in serious tax debt.  When you hire someone for tax representation, that person takes on the responsibility of speaking on your behalf before the IRS. 

Offer in Compromise – Doubt as to Collectability

This is an agreement that settles your debt for less than the amount owed.  Again, this is the hook used by many of the commercials you may have heard.  The partial pay installment agreement would do the same thing without exposing your assets to a potential liquidation requirement.   

The IRS will not accept your offer if there’s a chance the liability can be paid in full, in a lump sum or in an installment agreement.  The streamlined installment agreement typically has a 72-month pay-off term.  If you’ve already been working to get yourself in a better situation to be able to pay your taxes, and you owe $10,000 or less, you may have the option of a guaranteed payment plan. 

Even though you might think you can’t repay your debt via an installment program, remember, the IRS has some additional discretion, because they are limited by the CSED (the Collection Statute Expiration Date).  However, if they determine you would be able to pay off your tax debt before the CSED, they would reject an offer in compromise. 

Owe $100,000 or more in Tax Debt?

Getting an offer in compromise approved will require an additional level of authorization.  This would be granted by the IRS District Counsel. 

Some people refer to the Offer in Compromise as the fresh start initiative. The program began in 2011.  It changed the computation for a taxpayer’s future income.  It also extended the amount that can be repaid for student loans, as an allowable expense.  Episode 38 goes into more detail as Timalyn discusses IRS Form 433-F. 

Offer in Compromise – Doubt as to Liability

You would submit this when there’s a genuine dispute as to the existence of a tax debt, or the amount of the tax debt.  It’s used when there’s a likely error by the IRS in assessing the tax debt. 

The offer must be greater than $0 and based on the amount you believe is the correct amount of tax liability (not what the IRS is claiming you owe). 

The Doubt as to Liability option will require you to submit IRS Form 656-L. 

The Doubt as to Liability option is typically used after an audit was performed and tax was assessed.  However, you had incomplete documentation at the time.  Now, the supporting documentation you’ve found shows you really don’t owe the amount indicated by the IRS.   

Offer in Compromise – Effective Tax Administration

This is when the amount owed is not in dispute.  There are assets that could be liquidated to pay the debt, but exceptional circumstances exist that would result in an undue economic hardship, if full payment of the debt would be required.  The same would exist if paying the full tax debt would be unfair or unequitable.

Timalyn provides an example of an elderly individual living on a fixed income.  Even if this person owned his/her home, selling the home to pay the taxes would make it very difficult from a financial standpoint, assuming the person were to live another 10 years, or more.  Social security retirement benefits are really not enough to live off of, given today’s inflationary environment.  The cost of living is relatively expensive, so adding a rent payment would make it nearly impossible. 

In the above example, this individual might be an ideal candidate for the offer in compromise – effective tax administration option. 

Need Tax Help Now?

If you need answers to your tax debt questions, book a consultation with Timalyn via her Bowens Tax Solutions website.  Click this link to book a call.

Please consider sharing this episode with your friends and family.  There are many people dealing with tax issues, and you may not know about it.  This information might be helpful to someone who really needs it.  After all, back taxes shouldn’t ruin their life either.

As we conclude Episode 48, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.  

Remember, Timalyn Bowens is America’s Favorite EA and she’s here to fill the tax literacy gap, one taxpayer at a time.  Thanks for listening to today’s episode.

For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .

If you have any feedback, or suggestions for an upcoming episode topic, please submit them here:  https://www.americasfavoriteea.com/contact.

Disclaimer:  This podcast is for informational and educational purposes only.  It provides a framework and possible solutions for solving your tax problems, but it is not legally binding.  Please consult your tax professional regarding your specific tax situation.