Can an Offer in Compromise help me?

Texas residents who are unable to pay their federal tax bills may be able to benefit from an Offer in Compromise with the IRS.

Making financial ends meet on a daily basis can be a challenge all by itself for people in Texas. When additional bills are added on top of regular expenses, the burden can grow and create additional hardships. Large tax assessments may contribute to these situations.

What can taxpayers do when they owe money to the Internal Revenue Service but have no way to pay their tax debts? One option is what the IRS calls an Offer in Compromise.

Understanding the basics

As explained by the Internal Revenue Service, an Offer in Compromise is essentially an offer made by a taxpayer to the IRS requesting that the IRS accept less than the full amount of tax due. It can be thought of as a form of negotiation or proposed settlement requesting the IRS to reconsider how much money it will accept from the taxpayer. An offer provide for a one-time payment of a tax debt or a series of payments to be made over time.

Eligibility requirements

While any taxpayer may be able to apply for an Offer in Compromise, there are some basic requirements that must be met in order for an offer to be considered. People who have active bankruptcy plans, like Chapter 13 plans, are not eligible to make Offers in Compromises to the IRS. Additionally, taxpayers must be current on all other tax filings including any deposits made for employees of a self-employed taxpayer.

Consideration factors

When reviewing an Offer in Compromise, the IRS may be more likely to accept a particular offer if it believes that it would be unable to collect any more than the amount put forth in the offer. The IRS will take into account the taxpayer's assets, expenses, income and overall ability to pay in making a final determination.

Forbes explains that in 2012, the IRS changed some rules that led to more Offers in Compromise being accepted. The number of items allowed to be included as allowable expenses, including miscellaneous items, was expanded. Taxpayers were also given some relief in the ability to exclude some vehicle value as the IRS deemed that necessary for the welfare of families.

The offer process

Once an offer is made, taxpayers must make any payments as proposed in the offer while waiting for a response from the IRS. They should also be prepared for federal tax liens to be issued. These liens may be released once the tax debt is completely satisfied in the eyes of the IRS. Denied offers may be appealed within 30 days.

Talk to an attorney

Before choosing to attempt an Offer in Compromise, taxpayers are encouraged to consult with an experienced tax lawyer. Because these offers should be pursued only after other options have been exhausted, getting help from a professional is important.