March 23, 2016

3891981_sIf you are having a difficult time paying off your taxes, you may seriously be considering the Internal Revenue Service’s offer in compromise program. Before submitting those forms, however, it may be best to take a closer look at the pros and cons of this program to see if this is truly the best option for you and your financial situation.


If you are under tax debt and are unable to pay your back taxes in full, an offer in compromise provides financial relief through the form of a tax debt reduction. This provides you the opportunity to lower your debt substantially and have a better chance of paying it without having to sacrifice your earnings or assets.

An offer in compromise puts collection activities of all other creditors on hold while the program is being considered. Take note that the garnishment of wages or any other ongoing collection activities that began prior to the filing of the offer in compromise may continue after the filing.

While you may opt to pay your reduced tax debt in a lump sum, you may also opt to pay the reduced tax debt amounts in installments. The IRS will accept a payment of 20% of the total offer amount with your application, then allow you to pay the remaining balance through five or fewer payments after receiving the written acceptance from the IRS. With a periodic payment scheme, you may submit your initial payment with your application and pay the balance in installments on a monthly basis until your reduced tax debt is fulfilled.

If accepted and completed, an offer in compromise removes any tax liens against you and your properties. This enables you to earn more money in the future without having to worry about paying off any back taxes.


The IRS has strict requirements when it comes to accepting offers in compromise, such as requiring you to have a very low monthly income and almost no assets. Unfortunately, your offer in compromise may be rejected by the IRS and you may find yourself having spent too much time and money on attempting to settle with the IRS when you could have found another way to resolve your tax liability instead.

If you are among the millions of taxpayers benefitting from annual tax credits, you may possibly have to surrender those benefits the succeeding year. While the IRS allows you to lower the amount owed to the government through an offer in compromise, you will need to forfeit your ability to claim certain credits on your income tax returns and possibly lower the amount of your refund significantly.

If you utilize this remedy to settle your tax debt with the IRS, you must be aware that an offer in compromise is a matter of public record for at least one year. This means that anyone may go to their local IRS Area Office to view and copy the public inspection file.

After having your taxes settled through an offer in compromise, the IRS requires you to remain compliant for at least five years. Breaching this agreement gives the IRS the right to revoke your offer in compromise and collect the entire tax liability from you.

Categories: Blog, IRS, Tax Penalties, Tax Tips, Taxpayers' Rights