What Is an Offer in Compromise and How Can I Secure This Tax Settlement?

Are you struggling with a large back tax burden? Whether you failed to pay your taxes on time and in full because of a calculation error, a paperwork problem, or because you just couldn’t afford what the IRS asked for, back taxes can snowball fast. The IRS imposes steep fees and interest charges on unpaid back taxes that can take your debt from manageable to overwhelming in a matter of months. Soon, you might worry that you’ll never be able to break free.

Luckily, the IRS will occasionally grant tax settlements to make it easier for you to repay all or part of your debt. One of the most popular tax settlements is the offer in compromise, and securing one can mean the difference between a bleak outcome and a bright financial future. However, you’ll want to hire a tax resolution expert such as a tax attorney or CPA to help you determine whether you’re eligible and to negotiate with the IRS on your behalf. Without professional help, it’s extremely difficult to successfully petition for a tax settlement.

What exactly is an offer in compromise? In short, it’s an agreement with the IRS to settle your tax debt for less than you actually owe. You or your representative must offer an alternative repayment amount. If the IRS accepts that amount, you guarantee repayment within a certain time frame, either as a lump sum in five or fewer payments or spread out into monthly installments.

You may be eligible for an offer in compromise if you meet the following criteria:

  • Your current income, assets, and expenses make it unlikely you’ll be able to repay the owed amount.
  • Repayment of the full amount would constitute a financial hardship.
  • You have filed all of your tax returns and back tax returns.
  • You are not currently in an open bankruptcy proceeding.
  • You are up to date on any estimated tax payments and/or income tax withholdings.

Because offers in compromise significantly reduce the amount you owe, and thus the amount the IRS will collect, they aren’t given away easily. You’ll need a tax attorney, CPA, or enrolled agent to help you gather all of the necessary documentation to back up your claims, and to act as your advocate in all dealings with the IRS. Tax professionals are fully versed in federal, state, and local tax laws, and know the best ways to present and argue tax settlement cases, including petitions for an offer in compromise. They can also advise you if your situation better lends itself to a different route for tax settlement, such as an installment payment plan or penalty abatement.

If you’re buried in back taxes and you’re worried that the IRS’s tax penalties will soon make the debt burden unbearable, know that it’s never too late to bring in a tax resolution professional. After securing your offer in compromise or other tax settlement, your tax advocate can help you assess your financial situation and create a budget and payment plan that you can stick to. Then, once your existing IRS woes are a thing of the past, you can take steps to ensure you never have tax problems again.