Tax Liability Settlements (Offers in Compromise)

Tax Liability Settlements are available from the IRS and state tax authorities for when you (or your business) cannot pay its tax bill. The reasons can be almost any legitimate ones, but you have to petition and fight for the settlement. The tax attorneys at B & B Law Group will navigate the requirements and advise you on legal ways to protect assets from seizure.
By filing an Offer in Compromise, you are offering to pay less than the full amount of your tax debts to the Internal Revenue Service. The IRS, at its discretion, may accept less than full payment of your tax debts if there is doubt as to whether the IRS could ever collect the full amount of tax debt or if there is doubt as to whether you are actually liable for the tax debt. Submitting an offer in compromise is one of five ways to get out of tax debt.

Frequently asked questions about the Settlement process:

How does the Settlement process work?

In a nutshell, you agree to:

  1. Pay the offer amount in the Offer in Compromise.
  2. File your tax returns on-time and pay your taxes on-time for the next five years.
  3. Let the IRS keep any tax refunds, payments, and credits applied to your tax debts prior to submitting your Offer in Compromise.
  4. Let the IRS keep any tax refunds that would have been payable to you during the calendar year that your Offer in Compromise is approved.
  5. If you don't fulfill the terms of the Offer contract, the IRS can (and probably will) revoke the Offer in Compromise and reinstate the full amount of tax liability.

What can I do to keep my Offer in Compromise from being revoked or rejected?

If your Offer in Compromise has been approved, you need to make sure the IRS does not revoke your Offer. At all costs, make sure that you:

  1. File your taxes on-time for the next five years.
  2. If you cannot file by April 15th, request an automatic extension. Definitely file your taxes by the extension deadline.
  3. Pay your taxes on-time. If you owe, your taxes must be paid in full by April 15th. Make estimated payments or extension payments to make sure you don't have a balance due.
  4. If the IRS revokes your Offer in Compromise, they will reinstate the full amount of your tax liability, add on penalties and interest, and begin aggressive collection efforts.

Can I pay "pennies on the dollar" to settle my tax debts?

The marketing slogan, "pay pennies on the dollar," can be misleading and usually is. In a successful offer in compromise, the taxpayer pays less than the full amount of taxes, penalties and interest. However, the taxpayer must prove that the amount he or she is paying is equal or more than the reasonable collection potential (RCP) as determined by the IRS. The RCP, broadly speaking, is the IRS' best guess about how much money you could come up with in the next 24 months to pay off your tax debts.

How many Offers in Compromise does the IRS approve each year?

The Internal Revenue Service approves only a small number of offer in compromise applications each year. In 2004, the IRS approved 19,546 offers, about 16% of the total number of offers received. As of May 2010, the IRS has accepted about 24% of offers. (Source: National Taxpayer Advocate, 2011 Objectives Report to Congress.)
The key to a successful Offer in Compromise is making sure that the IRS can process your application, and that you submit complete backup documentation to support your offer.

How long does it take to get an Offer in Compromise?

It will take one to two years to complete the Offer in Compromise process. In our experience, the amount of time is dependent on the circumstances. Our shortest one was accepted in 9 months and our longest was accepted after 23 months.
The timeline for an Offer in Compromise looks like this:

  1. Preparing the Offer in Compromise forms and backup documentation (1-4 months)
  2. IRS Processing of your Offer in Compromise (13-18 months)
  3. Finalizing the Offer and Making Payment Arrangements (1-3 months)
  4. Based on the latest statistics, the IRS takes an average of 380 days to process an Offer in Compromise application. Your processing time may be shorter or longer than this.

Is there a fee for submitting an Offer in Compromise?

Yes. The IRS charges a user fee of $186 to process an Offer in Compromise. You must pay this fee whether you prepare the Offer yourself or hire a tax professional. If you are living below the poverty line, the IRS will waive the fee if you prove your gross income is below the poverty line for your family size.

Below is an acceptance letter for an offer in compromise. The taxpayer experienced bankruptcy and several other setbacks and owed over $350,000 in taxes, penalties and interest. We got the IRS to accept $1000 to settle the entire debt. This result is NOT TYPICAL but no matter what your circumstances, we will fight to get the best settlement deal possible for you.
(Anonymized for privacy)

Here is another example of our work. The taxpayer owed taxes to the District of Columbia. DC settled almost $80,000 for only $12,000. This settlement is more typical of the type that most people will get, unless there are other issues (illness, unemployment, bankruptcy, etc).
Call B & B Law Group for a free consultation and get help now!

Settlement with the Virginia Department of Tax

OIC Acceptance Letters