Offer In Compromise
Note
The IRS has issued an updated Form 656-B (revised April 2022). When submitting OICs to the IRS, use the most current year version of the booklet to avoid unnecessary issues with processing the offers.
Our U.S. tax system is built on the premise that all taxpayers are expected to report their tax liabilities accurately and pay them on time. However, the Internal Revenue Code (§7122) gives the IRS the authority to “compromise” (i.e., settle based on a taxpayer’s adverse economic circumstances) a tax liability for less than its stated amount at certain times when:
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Doubt exists as to the liability;
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Doubt exists as to the liability’s collectibility; or
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It would advance effective tax administration to settle the liability.
Note: Although the IRS may compromise any civil or criminal case arising under the Internal Revenue Code, once IRS sends a case to the Department of Justice, the latter gains jurisdiction over its outcome.
According to IRS Policy Statement P-5-100 goals of the OIC program are:
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The IRS will accept an offer in compromise when it is unlikely that the tax can be collected in full and the amount offered reasonably reflects the collection that is probable.
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An offer in compromise is a justifiable alternative to declaring a case currently not collectible or making it the subject of a long, drawn-out installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the government.
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In cases where an offer appears to be a possible solution to a tax delinquency, IRS personnel assigned to the case will discuss the compromise alternative with the taxpayer and assist as needed in preparing the required forms. The taxpayer is held responsible for starting the first specific proposal for compromise.
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Ensuring success of the compromise program requires: (a) taxpayers to make adequate compromise proposals consistent with their ability to pay along with reasonable documentation to verify this ability, AND (b) the IRS to make prompt and reasonable decisions in compromise cases.
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The ultimate goal of the program is a compromise that is in the best interest of both the taxpayer and the government. Acceptance of an adequate offer is meant to result in a fresh start for the taxpayer to comply with future filing and payment requirements.