Will the IRS settle for less than I owe?
Sometimes. An offer in compromise settles a tax debt for less than the full amount, but only on specific legal grounds, and acceptance is at the IRS's discretion. Chosen well, it can end a case. Chosen poorly, it costs time, money and part of the collection clock.
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Talk to us about your IRS problemThis first phase is a fixed fee, set before work begins. Nothing in it obligates you to the next phase.
Three grounds for a compromise.
An offer needs a recognized basis. Even with one, the decision to accept and the terms are left to the IRS's discretion.
Doubt as to collectibility
Your assets and income are less than the full liability. This is the most common basis, and it turns on your ability to pay.
Law · Treas. Reg. §301.7122-1(b)(2)Doubt as to liability
There is a genuine dispute about whether, or how much, tax is owed. It is not available where the liability has been established by a final court decision.
Law · Treas. Reg. §301.7122-1(b)(1)Effective tax administration
The tax could be collected in full, but doing so would cause economic hardship, or exceptional circumstances of public policy or equity justify compromise. It is not available where compromise would undermine compliance.
Law · Treas. Reg. §301.7122-1(b)(3)Discretion
Once a ground exists, acceptance and terms are decided by the IRS on all the facts and circumstances.
Law · IRC §7122(a); Treas. Reg. §301.7122-1(c)(1)How the IRS measures it.
For a collectibility offer, the IRS determines your ability to pay while allowing you to keep enough to cover basic living expenses, using published national and local expense standards as a guide. It may not use those standards where they would leave you without adequate means for basic living expenses.Law · IRC §7122(d)(2); Treas. Reg. §301.7122-1(c)(2)
In practice the IRS considers your income, expenses and the equity in your assets.IRS practice · IRS offer in compromise guidance
Where you are offering to settle a liability your spouse does not share, the nonliable spouse's own assets and income are generally not counted, with exceptions, including transfers made to put property out of reach and state community property rules.Law · Treas. Reg. §301.7122-1(c)(2)(ii)
What it costs to apply, and what happens while it is pending.
If an offer is not accepted, the IRS keeps the application fee and applies payments made with the offer to your balance.IRS practice · IRS offer in compromise guidance
A payment with the offer
A lump-sum offer (five or fewer payments) must include 20 percent of the offer amount. A periodic-payment offer must include the first proposed installment, and later installments must be made while it is evaluated.
Law · IRC §7122(c)(1)An application fee
The IRS charges an application fee. Low-income individuals are exempt from the fee and the required payments.
Law · IRC §7122(c)(3) · Fee amount: IRS practiceNo new levies
The IRS may not levy for the tax covered while the offer is pending, for 30 days after a rejection, and during a timely appeal. This does not undo a levy made before the offer.
Law · IRC §6331(k)(1), (3)A longer collection clock
The IRS's period for collecting the tax is suspended while the offer is pending and in those periods, so an unsuccessful offer extends the time the IRS has to collect.
Law · IRC §6331(k)(3), applying §6331(i)(5)Acceptance, rejection and appeal.
A rejection can be appealed to the IRS Independent Office of Appeals. An offer not rejected within 24 months of submission is deemed accepted, excluding time the liability is in dispute in court.Law · IRC §7122(e), (f)
To be eligible, the IRS requires that you have filed all required returns, made required estimated payments and not be in an open bankruptcy.IRS practice · IRS offer in compromise eligibility
An offer should be chosen, not hoped for.
Whether an offer makes sense is a calculation, made from your finances and your IRS record before anything is filed. When the numbers don't support one, we say so, and look at the alternatives: an installment agreement, penalty relief, or the time left on the collection clock.Bridge's view · practitioner judgment
We take it from here.
- We take controlOnce you sign the authorization, we deal with the IRS for you. Send us any IRS letter you receive.
- Exactly where you standEvery year, balance, penalty and filing, taken from your IRS record rather than estimated.
- Your deadlines, risks and leverageIncluding how much time remains for the IRS to collect each year.
- Your Resolution RoadmapIn writing: whether an offer is supported, and the paths open to you if it is not.
Primary sources: Internal Revenue Code §7122 and §6331(i), (k); Treasury Regulation §301.7122-1; IRS, Offer in Compromise. General information, not advice for your situation.