Although the IRS is particular about why you're asking for an OIC, there are three legitimate reasons to file this request for tax relief:
- Doubt of liability - The IRS isn't sure that the assessment was correct.
- Doubt of collect-ability - The IRS isn't sure if you can pay the tax debt in full.
- Effective tax administration - Payment of the tax debt in full may cause undue hardship or you have proven that you cannot pay the tax debt in full because of circumstances beyond your control.
With an offers in compromise, you agree to pay a certain amount of the tax bill. If the IRS believes that you may never be able to pay the full tax debt - even if you sold all of your assets - they may accept your Offer or give you another Offer. Tax relief is given after the offered amount is paid in full; the rest of the debt is written off.
For instance, if you owe $30,000 in taxes and fall under doubt of liability, doubt of collect-ability, or effective tax administration, the IRS may consider a tax relief claim of an Offer in Compromise. You might offer to pay $15,000 in two years with a $3,000 down payment. Here, the IRS may either agree or give a counter offer. Once the offers in compromise is agreed upon , all collection actions cease.