IRS Tax Problems

A Complete Guide to the Three Types of IRS Offers-in-Compromise

A Complete Guide to the Three Types of IRS Offers-in-Compromise

Taxes are inevitable. No matter how responsible you are, though, it is possible to run into IRS tax problems. If you’ve found yourself mired in federal tax issues, you’re probably grasping for any solution that will get you out of IRS debt.

One of the options available to you is an offer-in-compromise. If you’ve already been researching tax resolution methods, you might have seen information about this IRS offering. An offer-in-compromise, in short, allows taxpayers to settle their tax debt for less than they actually owe. The IRS defines this program as “an agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer's tax liabilities for less than the full amount owed.”

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Credit: Getty Images

There are, however, eligibility requirements that must be met. It is wise to work with a tax professional if you are considering this tax resolution solution.

If you’re facing IRS tax problems, an IRS offer-in-compromise could be the best thing that ever happened to you – but it’s important to understand the basics first. Here, we dive into three categories of offers-in-compromise.

Your tax professional will be able to help you navigate which is the best fit for your financial situation.

Doubt as to Collectibility

A “doubt as to collectibility” offer-in-compromise is generally what taxpayers apply for when they cannot pay the full amount of back taxes that they owe. Essentially, in these cases, the IRS doubts whether they will ever actually be able to collect the full sum of the tax bill.

This means the agency is more likely to “take what it can get,” so to speak, from delinquent taxpayers.

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Credit: Getty Images

Doubt as to Liability

A “doubt as to liability” offer-in-compromise is generally what taxpayers apply for when they believe the amount the IRS claims they owe is incorrect. If this is legitimate, the error could be the fault of the IRS, your tax preparer, or you personally.

It is also possible for employment misclassifation (i.e. a W2 worker being classified as a 1099 independent contractor) to lead to tax liability mistakes. Generally, when someone qualifies for this type of offer-in-compromise, they pay what they believe they owe rather than the sum listed on their tax bill.

Effective Tax Administration

Individuals who do not qualify for “doubt as to collectibility” or “doubt as to liability” offers-in-compromise may be eligible for the “effective tax administration” option. This third and final type of offer-in-compromise is generally applied for by those who are facing extenuating circumstances of some kind.

This could include, for example, job loss or the death of a family member that led to a drastic reduction in household income.

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Credit: Getty Images

Tax problems don’t have to ruin your life. Working with the right tax professional can alleviate stress and help you figure out which type of IRS tax settlement, such as an offer-in-compromise, is right for you.

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Spencer Wilson

Spencer Wilson

Spencer Wilson, EA is a tax preparer based in Long Beach, CA. Spencer Wilson Financial Management Services has been serving the Greater Los Angeles Area and Orange County since 2004. <br /> We began in the heart of Naples in Long Beach and we continue to work hard offering tax preparation and planning, business accounting and bookkeeping and payroll services . <br /> We have helped many different people and businesses succeed financially and take control over their finances.

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