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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

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Settle with the IRS for Pennies on a Dollar- Offer in Compromise?

Posted on in Uncategorized

You’ve seen the commercials on television, read the advertisements in the newspaper, maybe heard from your friends about people that have walked away from thousands of dollars they owed the Internal Revenue Service.

But is it really possible?

Yes. And no.

Every day, thousands of people make offers to the IRS to resolve their tax disputes. And some of them do indeed receive approval from the IRS to pay a fraction of what they owe, in exchange for a "write off" by the IRS of the remaining balance. This is known as the "Offer in Compromise" program, and it is has been around for decades. The problem is that it is typically very difficult for most taxpayers to qualify for the program, or to receive much of a write-off, particularly if they own assets with some equity, or have a monthly paycheck that is not totally used up paying rent and buying groceries. As a matter of fact, historically the acceptance rate for offers in compromise was only about 5%!

But there is some good news. First, the IRS has recently liberalized the offer in compromise program, and made it possible for many more taxpayers to get a "fresh start" by walking away from overwhelming IRS debt, particularly if they are able to come up with some cash from a third party source (i.e., friend or family member). Second, there are other ways to deal with IRS debts that will provide relief and save a taxpayer from an IRS property seizure - like "partial" installment agreements and "Currently Not Collectible" status. For the right situations, these might be better alternatives for a taxpayer than the Offer in Compromise program!

The most important thing to remember is to not let the matter be ignored. In other words, bravely and calmly open those letters from the IRS, and take on the problem proactively. You have procedural rights and options, but you cannot exercise them by closing your eyes to the reality and hoping it goes away - the IRS is one creditor that will not forget about you.

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