Internal Revenue Service (IRS), operating under the aegis of the United States Department of Treasury, offers a special program called ‘offer in compromise’ for taxpayers who are unable to pay their full tax debts. Under the IRS offer in compromise program, a settlement equivalent to less than what the taxpayer actually owes can be negotiated. The application and scrutinizing processes are often lengthy. More than half of the applications for IRS offer in compromise are rejected. So, taxpayers usually opt for IRS offer in compromise as a last resort.The IRS offer in compromise is usually availed by people in financial difficulties or with physical, psychological, drug/alcohol, or age related problems. Such persons may not be able to pay their full tax amounts.
A taxpayer who wants to avail the offer in compromise facility should submit an application in form 656, a collection information statement in form 433-A, other relevant financial documents, and medical records. In the event of a rejection, the IRS gives the taxpayer a written explanation containing reasons of rejection.
The IRS usually rejects an offer in compromise if the amount offered is too small or if the taxpayer had been convicted in the past for some serious financial crime. Usually the minimum amount acceptable under the IRS offer in compromise scheme is equal to the realizable value of the taxpayer’s assets plus an amount that could be deducted from his future income. The taxpayer can resubmit an application. He can also avail the help of a revenue officer or special procedures officer in filing the application. If the offer is resubmitted within a month of the original submission, no new application form is required. A new form is required only when the resubmitted offer differs considerably from the old one or the financial status of the taxpayer has undergone major changes.
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