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How does an offer in compromise work?

| Jul 19, 2019 | Tax Controversies |

As previous posts here have discussed, many people in White Plains and the other New York suburbs may find themselves the target of an IRS audit or other collection action. Following an audit, even a well-meaning person may find himself faced with a large tax bill that would be hard to afford. After all, New Yorkers can and do make honest mistakes on their taxes. Moreover, tax laws and regulations, and even the legal positions of the IRS about the same laws and regulations, change over time. Sometimes, the IRS or even an individual examiner takes an aggressive position on which there is plenty of room for disagreement.

A New Yorker facing a tax deficiency under these circumstances may consider making an offer in compromise to the IRS. As the name implies, an offer in compromise involves a taxpayer agreeing to pay less than what is actually owed in lieu of the IRS having to go to court or use collection efforts. The benefit to the taxpayer is that she can pay considerably less and avoid legal action. The IRS, on the other hand, is able to collect revenue relatively quickly and easily.

Submitting an offer in compromise, and getting the IRS to accept it, is not a simple task. There are several technical requirements a taxpayer must follow. Also, the IRS will need to have some incentive to accept an offer in compromise. For instance, the government may use an offer in compromise to resolve a tax controversy in which it is not entirely clear that the taxpayer is in the wrong. In other cases, the government may accept an offer in compromise because it doubts it could collect much more through enforcement.