What is the Effective Tax Administration Offer in Compromise

There are three criteria under which an Offer In Compromise is considered.  The first two are Doubt as to Collectability and Doubt as to Liability.  The first is based on the claim that the taxpayer cannot pay the full amount owed in a reasonable time due to his economic circumstances.  The second is used when the taxpayer claims that the tax charged is not owed.

 

 

The third (and newest) method under which one can submit an Offer is Effective Tax Administration.  This doctrine has been in effect for several years and, even now, the parameters of the doctrine are still being determined by attorneys and Revenue Officers in the field.  Basically the doctrine says that when an individual submits an Offer under the Effective Tax Administration doctrine, he admits that he has enough equity in assets to pay the tax debt.  However, due to special and extenuating circumstances, the government should accept a token payment from the individual in lieu of payment in full.

The special circumstances are, of course, determined on an individual basis and usually relate to age or medical condition.  For example, an older person on Social Security may own a house free and clear, but cannot borrow the equity in it because no mortgage company will loan him the money due to his low income.  The IRS will not make him sell his home, because it would cost the IRS and our government more if he is put out on the street.  Another example is one who has an incurable disease.  It is assumed that he will need all of his assets to maintain a basic lifestyle in his final months or years.