The Green Law Group, PLLC

OFFER IN COMPROMISE & TAX NEGOTIATIONS

An Offer in Compromise is one avenue for settling a tax liability for less than what is actually owed. Generally, the IRS will entertain valid offers if there is some doubt as to whether the taxpayer owes the tax or whether the IRS beleives that it can actually collect the tax or if there is some doubt that the tax liablity is valid.

In making these determinations, the IRS examines the taxpayer's assets and the taxpayers income. These two items give the IRS an idea of its "reasonable collection potential." The IRS agents are trained to increase this amount. It is up to taxpayers to ensure that the IRS correctly determines their reasonable collection potential.

An Offer in Compromise will not be deemed to be realistic if the amount offered is less than the taxpayer's reasonable collection potential. If the taxpayer makes an unrealistic offer, the offer will be rejected by the IRS. Statistics indicate that most offers in compromise are rejected because they are not valid.

There are a number of non-attorney "tax practitioner" firms that promise to use the offer-in-compromise to settle tax debts for "pennies on the dollar" without first inquiring about the taxpayers particular circumstances. Indeed, in many cases the taxpayer may not owe the government anything or the government will not able to collect the outstanding tax liabilities anyway.

While some tax debts very well can be settled for "pennies on the dollar," most can not. If that were the case no one would be willing to pay their taxes. Taxpayers should be wary of any "tax resolution firms," especially one that tells the taxpayer that they can settle a tax debt for "pennies on the dollar" without having thoroughly examined the taxpayers particular situation.

These "tax resolution firms" make their living by filing Offers in Compromise without advising taxpayers of their full legal rights. Depending on the taxpayers case there may be other avenues available for settling a tax liability for less than what is actually owed. For example, the IRS auditor, IRS collector, the IRS appeals officer, or the IRS attorney may be willing to settle or concede certain tax liabilities so that they can simply close the matter or they may deem the hazards of litigation too high given the amount of tax owed. These avenues should always be explored before submitting an offer in compromise.

An experienced tax attorney can advise you about your rights and help prepare a valid Offer in Compromise.

Why Taxpayers Should Hire a Tax Attorney

The short answer is that hiring a tax attorney to review and structure a taxpayers financial affairs can give the taxpayer some certainty that things are done right, in many cases it can save the taxpayer significant amounts of tax and later IRS problems, and it can reduce the chances that the taxpayers neighbors and creditors will find out about the taxpayers financial and tax affairs.

Our tax administration system (such as the Internal Revenue Service and Tax Court System) and tax laws can be complex. Unless taxpayers are willing to take the time to become familiar with our tax administration system and tax laws and they are willing to devote a significant amount of time dealing with their tax issues, this complexity will favor the government.

There are numerous examples of where the government was able to collect more from unrepresented taxpayers than it would have been able to collect if the taxpayer had opted to hire a competent tax attorney. In most of these cases it would have cost the taxpayer significantly less to hire a tax lawyer than the amount of IRS penalties, interest and additional tax that the taxpayer ended up having to pay. And this does not even factor in the time and brain damage that the taxpayer had to expend and endure in the process.

Even then, the courts have the power to order the IRS to pay for the taxpayers attorneys fees.