What is an Offer In Compromise based on Doubt as to Liability?

The Offer based on doubt as to liability is not very common, but is very useful in certain situations.  To make an Offer on this basis, there must be a genuine dispute as to the validity of the taxpayer’s liability.  The most frequent situations where this type of Offer is used is in Trust Fund Penalty (also known as the civil penalty) and excise tax cases.  Very often the IRS assesses the Trust Fund Penalty against someone in a company that really does not have authority to control payroll; therefore, we can fight the imposition of the Trust Fund Penalty on that basis.  Even though the taxpayer believes that he does not owe the tax in question, his Offer cannot be zero; he must offer some amount of money.  The IRS will weigh the hazards of litigation against the taxpayer’s odds of winning; of course, the more the taxpayer’s odds of winning, the greater likelihood the IRS will accept a small amount in compromise.  Thus, as the taxpayer’s representative, I must be very well prepared to discuss the merits of the taxpayer’s position when I meet with the Revenue Officer. Another scenario where this type of Offer is used is when the tax is more than 10 years old.  The IRS can only collect taxes for 10 years after they are filed, unless the Statute is stopped for some reason.