Q&A with David Stell
Compromises on tax bills available for some filers
Q: There are some TV advertisements that claim they can help their clients pay “pennies on the dollar” on their tax debts and promise the IRS will accept their offer. What are they talking about?
A: It appears such claims are based on a section of federal tax law that allows assessed taxes and additions to those taxes, such as accrued penalties and interest, to be settled for less than the full amount owed. This is known as an “offer-in-compromise.”
Q: What is an offer-in-compromise?
A: An offer-in-compromise is an agreement between the federal government and a taxpayer to accept a taxpayer's offer of less than the full amount owed. The offer can be accepted when the amount offered reasonably reflects the amount the government can potentially expect to collect from the taxpayer within a reasonable period of time.
Q: What qualifications must a taxpayer meet to qualify?
A: Once a taxpayer submits an offer-in-compromise, the IRS looks at the taxpayer's ability to pay, including income, expenses, and equity in assets, to make a determination of the taxpayer's reasonable collection potential. A taxpayer's offer is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or through an installment payment agreement.