As the threat of Coronavirus spreads, many taxpayers face unprecedented economic challenges. The threat of commercial slowdowns and recession leaves millions in uncharted territory. Many Americans face the added anxiety of past tax debts. And the threat of a lien or levy by the IRS, a so-called “super-creditor,” leaves many taxpayers on edge—and looking for a fresh start.
For many taxpayers, the solution may be an IRS Offer in Compromise. For better or worse, an economic downturn increases the ability for thousands of Americans to settle their outstanding tax debt with the IRS. That means that for many, now may be the time to take advantage of the economic uncertainty and to position themselves for a successful tax settlement—and a fresh start.
An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service to settle a tax liability for less than the full amount owed. For many taxpayers, the IRS’s Offer in Compromise program provides a path toward a fresh start. To qualify, a taxpayer must submit an offer package (including all required documentation and forms) that meets IRS criteria. Taxpayers should take care to comply with applicable IRS criteria—submitting a non-compliant or rejected offer may harm the taxpayer’s position or ability to submit a subsequent offer with success.
Before an offer in compromise can be considered, the taxpayer must (1) file all required tax returns, (2) have met certain timing requirements, (3) make all required estimated tax payments for the current year, and (4) make all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees. An offer will be immediately returned without further consideration if the taxpayer has not filed all required tax returns.
The IRS is authorized to settle a tax debt on one of three grounds: 1) a doubt that the tax liability can be collected in full, 2) a doubt as to the amount owed, or 3) to promote effective tax administration. The IRS can accept an OIC under the concept of “effective tax administration” in situations where collection in full could be achieved but would cause the taxpayer economic hardship or inequitable treatment.
Freeman Law has a number of online resources available to taxpayers with respect to the IRS’s Offer in Compromise Program, including A Fresh Start for Taxpayers: The Offer in Compromise.
Taxpayers with significant outstanding tax debt should consult with a tax attorney about the prospect of settling outstanding tax debt with the IRS. Particularly in these uncertain economic times, taxpayers may have a unique opportunity to resolve tax debt through an offer in compromise. And that could mean a fresh start for many.