Offer in Compromise

Tax relief firms with qualified tax attorneys on staff can help distressed taxpayers obtain an Offer in Compromise (OIC) which allows certain individuals with an unpaid tax debt to negotiate a settled amount that is much less than the total owed. The tax attorneys can determine if the taxpayer is eligible for the OIC program and even help taxpayers achieve eligibility. The objective of the OIC program is to accept a reduced amount when it is in the best interests of both the taxpayer and the government and enhances compliance filing requirements.

At least one of three conditions must be met to qualify a taxpayer for an OIC settlement:

• Doubt as to Liability - Debtor can show reason for doubt that the tax liability is correct. Tax relief firms such as bluetax.com can help taxpayers demonstrate the existence of doubt as well as the other conditions below.

• Doubt as to Collectibility - Tax attorneys can build a case that the debt is likely uncollectable in full by the IRS.

• Effective Tax Administration - Debtor does not contest liability or collectability but can demonstrate special circumstances that the collection of the debt would create an economic hardship. The program is available for taxpayers who can demonstrate one of these conditions.

Doubt As To Collectibility

Doubt as to collectability means that the taxpayer will not ever be likely to be able to pay the entire tax bill. The taxpayer's tax attorney completes a financial statement on a form provided to the IRS. This is available to both wage earners and self-employed individuals. These financial statements identify all assets and liabilities as well as disposable income. The services of a tax relief attorney are invaluable in preparing this documentation.

Partial Payment

The OIC program requires that an up-front twenty percent payment plus $150 be submitted along with the Offer of Compromise in the case of a cash offer. A good tax relief firm can often get these upfront payments waived by the IRS.

Under the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA 2005) if a taxpayer chooses to make payments over time, the taxpayer must include with the offer the first month's payment. The taxpayer is not required to submit the 20%, which applies only to the lump sum payment option. Then during the time that the offer is being considered by the IRS, the taxpayer must keep making the monthly payments to keep the offer current. If the taxpayer fails to make the payments, the offer will be returned to the taxpayer. A good tax relief firm can work with the IRS to bypass all these requirement pitfalls.

In the case of both the $150 application fee and either the 20% down payment or the monthly payments, a taxpayer may be exempt from both. The tax relief specialists can help build a case for exemption.

An offer in compromise will stop tax levies. The IRS will not levy upon a taxpayer's property while a valid offer in compromise is pending and, if rejected, for thirty days after the rejection. It is crucial that the IRS sees that you have a qualified tax attorney representing you during the approval process or rejection is virtually assured. If the taxpayer's tax attorney appeals the rejection, the IRS cannot levy while the appeals process is ongoing. If a levy is in place when the offer is submitted, it is not automatically released, but prior levies can also be lifted with the right legal work.