What is the Difference Between the IRS Fresh Start Program and an Offer In Compromise?
You may have heard advertisements talk about the IRS Fresh Start Program. You may also have heard about an IRS Offer In Compromise. These two programs often get confused, but we’re here to clear it up for you and it’s quite easy. The IRS has a program called The Fresh Start Program and WITHIN this program there are many types of tax relief offered. One of the most powerful types of relief is called an Offer In Compromise.
What Is An Offer In Compromise?
When a taxpayer qualifies for an offer in compromise, the IRS agrees to settle the tax liability for less than what is actually owed. The IRS then wipes the rest of the tax liability off the books—as long as the taxpayer complies with the requirements that are part of their offer in compromise.
An offer in compromise is a settlement, or an agreement, between the taxpayer and the IRS to settle the tax liability for less than the amount that is owed. The authority for an offer in compromise derives from Internal Revenue Code (IRC) § 7122, which authorizes the IRS to accept less than the full amount due in the form of an offer in compromise (OIC).
Presenting a successful offer in compromise is both an art and a science. The IRS requires detailed information to be reported in a very specific and required format. An offer to compromise a tax liability should set out the legal grounds for compromise and should provide enough information for the IRS to determine whether the offer fits within its acceptance policies. The Internal Revenue Manual specifies many of the precise rights and requirements relevant to an offer in compromise.
The IRS can accept an offer in compromise based on any one of the following grounds:
- Doubt as to Liability
- Doubt as to Collectability
- Effective Tax Administration
Know Your Rights—An Offer in Compromise Generally Suspends IRS Collection Activity
The submission of an Offer in Compromise request generally suspends IRS collection. IRC section 6331(k) generally prohibits IRS levies on a taxpayer’s property or rights to property:
- during the period that the offer is pending,
- for an additional 30 days after the offer is rejected, and
- during the time any appeal of the rejection is pending.
The Right to Appeal
Treasury Regulation 301.7122-1(f)(5) provides that a taxpayer may administratively appeal the rejection of an offer to the IRS Office of Appeals if, within the 30-day period commencing the day after the date on the letter of rejection, the taxpayer requests such an administrative review in the manner provided by the Secretary.
Under IRC 7122(f) and Notice 2006-68, an Offer in Compromise is deemed to be accepted if it is not rejected, returned, or withdrawn before the date that is 24 months after the date of the submission of the offer.
IRC 7122(b) requires an opinion from Chief Counsel on all offers recommended for acceptance in which the unpaid liability (including tax, penalties and interest) is $50,000 or more. Counsel’s review of a proposed acceptance has two separate and distinct components:
- Certification that the legal requirements for compromise were met.
- Review of the proposed compromise for consistent application of the Service’s acceptance policies.
Fresh Start with an Offer In Compromise Summary
An Offer In Compromise (OIC) is a tax liability relief opportunity which allows one to settle a liability with the IRS for less than the amount owed. An OIC is just one of the tax relief options found within the provisions of the IRS Fresh Start program. Applying for and getting an Offer In Compromise approved by the IRS is a complicated process that can require a great deal of tax form completion and negotiation directly with the IRS. Any taxpayer can apply for and submit a request for an Offer In Compromise to the IRS on their own. However, there is a significant benefit to having a tax attorney who is highly experienced in this area to help you. A tax attorney will know the exact process, detailed qualifications and how to complete specific tax forms in order to give you the best chance of having your OIC approved.
The W Tax Group has tax attorneys on staff who can help you with an OIC. You can request a 100% free consultation at your convenience here.