Offer in Compromise based on Doubt as to Collectibility

An Offer in Compromise based on doubt as to collectibility is by far the most common type of Offer.  As the name implies, the IRS is willing to take a lesser amount than is due if the taxpayer convinces the IRS that there is very little likelihood of collecting the total amount within the statute of limitations

 

 

period.  The period of time within which the IRS can collect a tax is ten years after assessment, i.e. after the tax return has been filed.  This time period can be extended due to certain  occurrences.

To be successful, the taxpayer must demonstrate two things: (a) it is unlikely that the tax can be collected in full and (b) the offer reasonably reflects the amount the IRS could collect through other means (e.g. administrative and judicial collection techniques such as levies). This is the reasonable collection potential.

In making an Offer of this type, the taxpayer must reveal to the IRS all of his assets, such as home, cars, investments, etc., discounted by any debts owed on the assets.  Furthermore, current and potential future income is examined in light of the taxpayer’s monthly expenses that are allowed by the IRS.   In calculating the potential Offer amount, certain discounts allowed by the IRS can be utilized to show the reasonable collection potential.

When the Offer is filed, a filing fee of $150.00 is paid as well as some percentage of the Offer amount.  The initial amount paid with the Offer depends on the way the Offer will be paid if accepted, e.g. paid in full on acceptance or paid over two years.

The danger in making an Offer for the taxpayer is that, if the Offer is rejected, the IRS has an easier time employing forced collection techniques because they now know all of the taxpayer’s assets.  Thus one should not make an Offer unless he reasonably feels it will be accepted.