Offers in compromise: "doubt as to collectibility".

• Author: Elly, Mark H.
• Position: IRS policy on tax compromises

Sec. 7122 authorizes the IRS to accept compromises to fully settle tax debts. The Service may compromise a civil or criminal liability in three circumstances. An offer in compromise for "doubt as to collectibility" is an option available to taxpayers when (1) the likelihood of collecting the liability in full is small, (2) the amount offered reasonably reflects collection potential and (3) an installment agreement is not sufficient to cover the tax liability. The IRS's Collection Division administers offers for "doubt as to collectibility" and "effective tax administration."

In the second situation, an offer submitted because of effective tax administration is a compromise in which there is no doubt the tax is correct and the amount owed can be collected, but the collection would create an economic hardship or would be unfair and inequitable. Internal Revenue Manual (IRM) 5.8.2.4.1 provides examples of situations in which such exceptional circumstances exist.

Finally, an offer can be submitted for doubt as to liability, when the correctness of the assessed tax is in question. The Service's Examination Division handles these types of offers. Financial information is not required.

Offers for Doubt as to Collectibility

The IRS liberalized its Offer-in-Compromise Program in 1995 by agreeing to accept most offers for processing. There are only two reasons why the Service will not process an offer: a taxpayer is (1) in bankruptcy or (2) not currently in compliance. The system is now overwhelmed by offers and there is a backlog in the processing pipeline. The Service has stepped up efforts for training employees as offer specialists and has made enormous strides in improving the program. It is continually implementing changes.

Currently, the IRS has two programs:

1. Online Offer-in-Compromise Program for tax, penalties and interest of $50,000 or less; and

2. Offers for penalties and interest of more than $50,000.

   Online Offer-in-Compromise Program or "streamlined" offer. Taxpayers can use the Online Offer-in-Compromise (i.e., streamlined offer) by accessing the Service's Website at www.irs.gov/ind_info/index.html. A five-step program is available for eligible taxpayers with information necessary to complete the online forms. To be eligible, an individual must (1) agree with the tax liability, (2) have no unfiled past-due tax returns and (3) not be in bankruptcy. The liability can be for individual income taxes, penalties (e.g., trust fund recovery...