Offers in Compromise

An offer in compromise (OIC) is a proposal by the taxpayer to IRS to reduce a tax liability, including interest and penalties, to an amount less than that determined by IRS to be due. The typical reasons why IRS might consider an offer are: there is doubt as to liability, or there is doubt as to collectibility. In general, the vast majority of OICs are not accepted by IRS.

The most common type of OIC is probably one based on doubt as to collectibility, meaning there is doubt that IRS will be able to collect the amount due. From the IRS perspective there is doubt as to collectibility only if the net realizable equity in the taxpayer's assets is less than the full amount of the liability, and the taxpayer would not be able to make installment payments to pay the liability in full during a specified time period. In determining the ability to pay installments, certain standard allowable expenses are used. The offer must be more than the net realizable equity of assets and it must take into consideration the collection potential from the taxpayer's income. Our experience has been that simply making an offer of the minimum amount will not be successful. Essentially, the offer should be more than the amount IRS can collect using its powerful collection tools. This usually means using funds to which IRS has no access, such loans or gifts from family or friends.

Unlike doubt as to collectibility, an OIC based on doubt as to liability takes the position that the IRS assessment is not correct; in other words, it is a claim that the taxpayer does not owe the tax. With favorable facts, we have found this type of OIC to be very effective. However, the taxpayer must set forth detailed facts and supporting evidence and identify appropriate legal support to demonstrate that the taxpayer does not owe the assessed tax. Even though the taxpayer’s position is that the tax is not owed, an offer must be made.

In addition to the above types of OICs, an offer may also be made based on a claim that collection of the liability would cause the taxpayer economic hardship or that there is a compelling public policy or equity consideration for compromise.

The rules for preparation of an OIC are very complex, and an OIC should only be attempted with qualified professional assistance.




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Robert R. HendryRobert R. Hendry received both a Bachelor of Arts degree and a Juris Doctor degree from the University of Florida. Although he began his career in Pensacola, Florida, Mr. Hendry has practiced law in Orlando for more than thirty years.
Richard D. StonerRichard D. Stoner received a Bachelor of Arts degree from New York University and a Juris Doctor degree from Stetson University College of Law. He has practiced law in Orlando, Florida for more than twenty-five years.
G. Steven BrownG. Steven Brown is a 1975 graduate of the University of Central Florida, where he received a Bachelor of Science in Business Administration degree with a major in Accountancy.
Law for FloridaHendry, Stoner & Brown, P.A. traces its roots back to 1970, when Robert Hendry and Richard Stoner were principals together in a predecessor law firm. Our attorneys are committed to giving clients the legal edge they need to succeed and prosper.