Economic hardship for purposes of offer in compromise exists when payment of the tax will cause an individual taxpayer to be unable to pay his reasonable basic living expenses. This offer in compromise determination varies according to the unique circumstances of the taxpayer. However, unique circumstances do not include the maintenance of an affluent or luxurious standard of living. Some of the offer in compromise living standards taken into account are:
§ whether the offer in compromise taxpayer is incapable of earning a living because of a long term illness, medical condition or disability;

§ whether selling the offer in compromise taxpayer’s assets to pay outstanding tax liabilities would make the taxpayer unable to meet basic living expenses; and

§ although the offer in compromise taxpayer has some assets, whether the taxpayer can borrow against the equity in those assets and whether forced sale of the assets would have adverse consequences that make enforced collection unlikely.

An offer in compromise may be entered into if, regardless of the taxpayer’s financial circumstances, exceptional circumstances exist that make collection of the full liability detrimental to voluntary compliance by taxpayers and compromise of the liability does not undermine compliance by taxpayers with the tax laws. The Examination Division handles these types of offer in compromise. However, if the offer in compromise is also based on doubt as to collectibility, the Collection Division handles the offer in compromise first. Factors that support a determination that offer in compromise would not undermine compliance with the tax laws by taxpayers include:

§ the offer in compromise taxpayer does not have a history of noncompliance with the filing and payment requirements of the tax laws;

§ the offer in compromise taxpayer has not taken deliberate actions to avoid the payment of taxes; and

§ the offer in compromise taxpayer has not encouraged others to refuse to comply with the tax laws.

The existence of these factors does not automatically mean that the IRS will support an offer in compromise. Other factors that may be examined include the cause of delinquency, the length of noncompliance and efforts to resolve the noncompliance. The IRS generally reviews the last three to five years for compliance. This type of offer in compromise may be used when taxpayers are inadvertently subject to substantial penalties and interest. In such offer in compromise cases, the IRS generally expects that the amount of the offer in compromise would cover the amount of the tax liability, exclusive of penalties and interest.

In short, you must get qualified, experienced help when you seek an offer in compromise. Call us today at 1-877-477-7658 (877-IRS-SOLV).