The offer in compromise is an option when there is an IRS debt that the taxpayer cannot pay in full. The IRS considers the income, expenses (living expenses), and assets to potentially reach an agreement on a reduced amount. Note that the process is not easy and you have to qualify for the offer in compromise (link below), plus provide documentation on your income, expenses and assets (i.e. form 433-A) and other required documents depending on the case.
From Tax Tip 2021-60, an offer in compromise is defined as “… an agreement between a taxpayer and the IRS that settles a tax debt for less than the full amount owed. An offer in compromise is an option when a taxpayer can’t pay their full tax liability. It is also an option when paying the entire tax bill would cause the taxpayer a financial hardship. The goal is a compromise that suits the best interest of both the taxpayer and the agency.
When reviewing applications, the IRS considers the taxpayer’s unique set of facts and any special circumstances affecting the taxpayer’s ability to pay as well as the taxpayer’s:
- Income
- Expenses
- Asset equity“
Offer in compromise booklet – https://www.irs.gov/pub/irs-pdf/f656b.pdf
Pre-qualifier tool – https://irs.treasury.gov/oic_pre_qualifier/
