How many commercials have you seen claiming that they can significantly reduce your tax debt by up to 90 percent?  These advertisers encourage taxpayers to file an Offer in Compromise application with the IRS.  So what exactly is this Offer in Compromise?

According to the IRS, an Offer in Compromise (OIC) is an agreement between the taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than what is actually owed.  For this type of agreement to be issued, one of three conditions must be met.  First, there must be doubt that the taxpayer could ever pay the liability within the statutory period.  Second, there must be doubt that the taxpayer’s tax liability is actually correct.  Third, the IRS can accept an OIC if it is evident that, although the tax is correct, it would create a significant economic hardship on the part of the taxpayer.  Also, all other payment options must be exhausted before an OIC is put in place.

Consumers should be wary about these programs.  Advertisers tend to lead consumers astray, promising reduced debt, when in reality; very few individuals actually meet one of the three conditions.  Consumers should be especially alert to the hefty fees associated with pursuing these types of programs, particularly if they do not meet the conditions listed above.  

If a taxpayer happens to meet one of the conditions for an OIC, or has questions about the conditions, it would be wise to consult with a trusted tax advisor.  For taxpayers having trouble paying their tax liabilities and that do not qualify for an OIC, there are payment options to make paying the liability a little easier.  For more information on Offers in Compromise, installment agreements, and other tax payment issues, please contact our Tax Department.