The IRS will use three primary criteria when deciding whether to accept or reject an offer in compromise. It is theoretically possible to obtain an offer in compromise while not qualifying for any of the following criteria, however it is very unlikely.
Ground for Acceptance or Rejection
The grounds for acceptance or rejection of an offer in compromise include the following criteria:
1. Doubt as to collectability – If you file an offer in compromise on the grounds that there is a doubt as to the collectability, you must show the IRS that the collection in full of the debt is unlikely within the statute of limitations. You must also show the IRS that the offer in compromise reflects the amount the IRS could theoretically collect through different means.
2. Doubt as to Liability – For a taxpayer to qualify for this criteria, there must be a genuine doubt to the validity of the liability. The IRS will generally look at the hazards of litigation to determine the amount they will accept in compromise of the debt. The greater the hazard, the more likely the IRS will accept a smaller payment than what is being requested.
3. Effective Tax Administration – Effective tax administration criteria is what most taxpayers qualify for when applying for an offer in compromise. Usually collection of the debt in full is likely but would cause the taxpayer an economic hardship and therefore would be against public policy.
If a taxpayer wishes to submit an offer in compromise but does not qualify for any of the criteria above, it may be a good idea to look to a different means for settling your tax debt. The IRS will generally look to the above criteria to determine whether to accept or reject an offer in compromise. If you are confused as to whether your case qualifies, it would be in your best interest to seek professional assistance.