The IRS will generally accept an Offer in Compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. There are three types of Offers in compromise:

Doubt as to Collectibility. The IRS explanation of this is that doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection. The IRS will consider a doubt as to collectibility offer when the taxpayer is unable to pay the taxes in full either by liquidating assets or through current installment-agreement guidelines. The taxpayer must submit the appropriate collection information statement along with all required supporting documents.

Doubt as to Liability. This means that a legitimate doubt exists that the taxpayer owes part or all of the assessed tax liability.

Effective Tax Administration (ETA). This means that the taxpayer does not have any doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the Service to consider an offer. To be eligible for compromise on this basis, a taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable.

Some ads also have a call to action – “Act now as the laws might change.”

This statement is incorrect.  There are no changes in law pending in Congress that would hurt the Offer in Compromise program or disfavor taxpayers. In fact, there is a bill pending to help taxpayers by removing the current 20% nonrefundable offer deposit requirement.

The bottom line is, Be careful.   Ask questions, be informed and get the facts.

Tax accountant Joseph Reisman’s practice is at 2751 Coney Island Avenue,

718-332-1040