Why the IRS will not accept an Offer to Compromise your Tax Debt

I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS.

The IRS accepts less than a third of the Offer-in-Compromises that it receives. This is according to its own Data Book. Since it is a costly process to make an offer, it would behoove people to understand why these offers fail.

    1. You must be in “Compliance” – meaning all the tax returns due for the last 6 years must have been filed and your current year estimated taxes and withholding are up to date. Failure here makes your offer Dead on Arrival. The IRS does not want to make deals with people who are digging the hole deeper.
    2. The financial information that you provide must show that you have an inability to pay the debt in full. The IRS uses a formula approach to its evaluation. They apply it to the financial information you supply regarding the stuff that you own and your expected future cash flow. Making an offer that is less than what the formula shows that you can pay is almost certainly going to be rejected.

Why is it that the IRS will not accept an offer when the financial information shows a taxpayer could full pay? After all, the commercials all talk about them accepting “pennies on the dollar” when you use their services. The answer is simple – Why should they?

The IRS has collection powers that far exceed those of private debt collectors.

  • They have the police powers behind them and the force of law that will make a debtor’s life considerably more miserable than dealing with harassing phone calls from some debt collector agency.
  • They can levy wages, bank accounts, and money due to you from third parties. They can get into IRAs and pensions which are off-limits to everybody else.
  • Finally, they have an organization behind them that is not motivated by a profit percentage of the amount collected. They can be patient and persistent over the 10-year period that is the normal statute of limitations for collections.

Avoiding these two major pitfalls is why you probably need professional help from someone who understands the process and most importantly how the financial analysis works.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

Author: Jim Payne

Jim Payne, a Florida Certified Public Accountant (CPA) since 1976, offers candid insights on getting square with the IRS — with the least pain, and at the lowest cost — with (or without) the help of a tax representative. Mr. Payne is a former IRS agent and expert in business profitability, IRS audits, IRS payroll tax, and IRS non-filer issues. As a Tax Representative, his goal is clear: " I will speak on your behalf to all IRS agents, so you never have to, and I'll guide you in executing a strategy to resolve your IRS problem so you can get back to enjoying life."

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