Galena Group

Cannot Pay Your IRS Tax Debt?

Do you owe the IRS more than you can afford?  An offer in compromise may be your solution.

An offer in compromise [OIC] is settling a taxpayer’s tax debt with the IRS for less than the full amount owed.  If a taxpayer cannot pay the full debt, or doing so would create a financial hardship, this option is pursued.  To consider a taxpayer for OIC, the IRS reviews the taxpayer’s: 

  • Income
  • Expenses
  • Asset equity

The IRS generally approves an offer when the amount offered represents the most they can expect to collect within a reasonable time period.  If an offer is rejected, it may be appealed within 30 days.

A taxpayer must be in compliance in order to qualify for an OIC.  This means:

  • All past due estimated tax payments must be made.
  • All past due tax returns must be filed.
  • The taxpayer may not be in an open bankruptcy proceeding.

If an OIC is accepted, some unexpected events may still occur.  For example:

  • A Notice of Federal Tax Lien may still be filed.
  • Federal tax liens are not released until the OIC terms are satisfied.
  • The legal assessment and the statutory collection period are extended.

Once approved for OIC, the IRS may terminate the offer and a taxpayer could be liable for the full tax debt if:

  • The taxpayer defaults by failing to stay in compliance.
  • The taxpayer files for bankruptcy before the terms and conditions of the OIC are fulfilled.
  • The taxpayer provide false information.

If the taxpayer fails to meet the terms and conditions of the OIC, the IRS may:

  • revoke a release of federal tax lien and file a new notice of federal tax lien.
  • levy or sue to collect any amount ranging from one or more missed payments to the original amount of the tax debt, less payments made, plus penalties and interest accrued from the time the underlying tax liability arose.

IRS booklet on OIC can be found here.

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