IRS Office in Compromise Disadvantages

Document of financialsYou may have heard of a program the IRS offers called the Offer in Compromise program. This program allows the taxpayer to settle their debt for a fraction of what the IRS is requesting. Although this program has many advantages, it also has many disadvantages that the taxpayer needs to be aware of.

IRS Office in Compromise Disadvantages

All the following points can be found in the terms located on Form 656. These disadvantages include:

1. When the IRS accepts an Offer in Compromise, they request that the taxpayer comply with all provisions of the Internal Revenue Code that detail filing of tax returns and payment of tax for the next five years. This can become a problem because the tax code is complex and any little thing perceived by the IRS to be in violation of the tax law would void the Offer in Compromise agreement.

2. When the IRS accepts an Offer in Compromise, the taxpayer is agreeing to suspend the statutory period of limitations for IRS assessment of the tax liability for the tax years that are listed in the Offer in Compromise. This means that if the Offer in Compromise becomes void in the event the taxpayer defaults, the statute of limitations will begin again from the date of its suspension. This theoretically extends the statute of limitations for the IRS in the even the taxpayer defaults on their Offer in Compromise agreement.

3. Once the Offer in Compromise is accepted, the taxpayer is forced to waive their ability to contest the liability in court. Also, if the taxpayer defaults on their Offer in Compromise, they will still not be able to appeal the liability in Tax Court.

4. The IRS is given the ability to keep all previous payments, even if they are overpayments to the extent of the difference between the taxpayer’s total liability and the amount of the Offer in Compromise. This includes refunds that could be distributed to the taxpayer for tax periods through the year the offer is accepted.

5. The IRS is given the right to sue a taxpayer for the outstanding balance of an Offer in Compromise in the even the taxpayer defaults on the agreement. An exception to this rule is if your spouse was responsible for the default and you claim to not have known about it. The IRS will reinstate the Offer in Compromise agreement in this event.

6. If a taxpayer is considering bankruptcy, they should be aware that filing an Offer in Compromise can cause the tax to become non dischargeable in bankruptcy unless the time for assessment of the tax has expired.

7. All Offer in Compromise agreements are made public for anyone to inspect. This means that your financial situation will be viewable by anyone who wishes to have a look.

As you can see there are many disadvantages to an Offer in Compromise program. The taxpayer needs to weigh these against the advantages before they make a decision on how to proceed. In the event that the taxpayer is not aware of these potential pitfalls, the IRS will not have any sympathy for them because of ignorance. It is the job of the taxpayer to know both the advantages and disadvantages to the program before applying for relief.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


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