Today I want to talk about an Offer in Compromise based on  “Effective Tax  Administration.”  This is used when a person most likely has access to enough assets to pay the delinquent tax, but for certain reasons and extenuating circumstances, the IRS will choose not to collect the entire amount.  The

 

 

taxpayer must show an Economic Hardship or show that collection of the tax would be unfair and inequitable. He must submit a Collection Information Statement and a written narrative explaining the special circumstances.

As you can imagine, each of these cases is unique in its determination and there are no clear-cut rules as to what constitutes a case that will be accepted under this criteria.  Many times I submit this type of Offer based on the medical condition of the client.  For instance, the client may have a long-term illness with poor hope of recovery or have terminal cancer.  In these cases, the client will need all of his resources to pay mounting medical bills and other costs.  If the IRS takes all his money for delinquent taxes, the client will become totally dependent on the government to exist, and this will have a much greater negative impact on the general economy than forgiving most or all of the delinquent tax.

Of course, medical records and medical opinions must be submitted to support this type of claim.  In general, records must be submitted which will support the basis of the claim for special circumstances in each particular case. It is assumed that the financial records as set out in his collection information statement will show enough equity to pay the taxes.