What is an offer in compromise?

On Behalf of | Aug 20, 2021 | Tax Issues

When Pennsylvania residents owe a large sum to the IRS, it can be a scary time. However, taxpayers should know that it is possible to settle with the IRS for a lower amount in some cases. This settlement is known as an offer in compromise. Such an offer is only accepted in a few specific kinds of cases. There are also limits as to how much the IRS will take off the total tax bill.

Who makes the offer?

The taxpayer or their representative makes the offer in compromise to the IRS. They must submit specific forms to do this. These may include Form 433-A and -B and Form 646. The IRS website will have the most up-to-date information about this. A professional who deals with the IRS frequently, like an accountant or lawyer, may also be able to provide guidance about this process.

When will the IRS extend an offer in compromise?

There are three types of tax issues that occur where the IRS will accept an offer in compromise. The first is when there’s doubt as to how liable the taxpayer is for the full amount. Secondly, the IRS may extend an offer if it is unsure that the full debt can be collected. This usually happens when the tax debt is greater than the amount the taxpayer earns annually. The final reason the IRS may accept an offer in compromise is when there’s a special circumstance that is unfair or can cause undue hardship for the taxpayer.

The IRS may decide to accept or reject an offer in compromise. If it’s rejected, a taxpayer can appeal. Ultimately, offers in compromise provide the opportunity for taxpayers to address their tax issues with the IRS on a personal level.

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