Offers in Compromise — Pennsylvania Tax Attorney
Settling IRS Tax Debt with an Offer in Compromise
Tax debt can be overwhelming for individuals and businesses alike. For some taxpayers, an Offer in Compromise (OIC) — an agreement with the Internal Revenue Service (IRS) to settle a tax debt for less than the full amount owed — may be an option worth exploring. An OIC is not available to everyone, and the IRS accepts an offer only when it concludes the offer represents the most it can reasonably expect to collect within a reasonable period. A Pennsylvania tax attorney can help you determine whether an OIC fits your situation and, if so, prepare an offer that gives the IRS what it needs to evaluate it.
An honest word of caution before going further: be skeptical of anyone who promises to settle your tax debt for “pennies on the dollar.” The IRS itself warns taxpayers about aggressive OIC marketing, and no one can guarantee the IRS will accept an offer. What a careful advisor can do is tell you honestly whether you’re likely to qualify — including when an OIC is not your best option.
The Three Grounds for an Offer in Compromise
The IRS may compromise a tax liability on three grounds:
Doubt as to Collectibility
The most common basis: your assets and income are insufficient to pay the full liability. This requires detailed financial disclosure of your income, expenses, assets, and ability to pay.
Doubt as to Liability
A genuine dispute exists about whether you actually owe the tax, or how much. This type of offer challenges the underlying liability itself.
Effective Tax Administration
You could technically pay in full, but collection would create economic hardship or would be unfair under exceptional circumstances.
Who Qualifies — and Who Doesn’t
Before the IRS will even consider an offer, a taxpayer generally must have filed all required tax returns, made any required estimated tax payments, and not be in an open bankruptcy proceeding. Businesses with employees generally must be current on federal tax deposits. The IRS offers an online pre-qualifier tool for a preliminary check, but the tool cannot weigh judgment questions — such as how the IRS will value your assets or which expenses it will allow — where a tax lawyer’s review can matter.
How the OIC Process Works
An offer is submitted on IRS forms with detailed financial disclosures, an application fee, and, in most cases, an initial payment (the fee and initial payment can be waived for taxpayers who qualify under low-income guidelines). The IRS then reviews your complete financial picture — income, expenses, asset equity, and future earning potential — to determine your reasonable collection potential.
While an offer is under review, the IRS generally suspends collection activity, though interest continues to accrue. If the IRS rejects the offer, you have the right to appeal within 30 days of the rejection letter. If the IRS accepts, you must pay the agreed amount on the agreed schedule and remain compliant with your filing and payment obligations for the following five years — falling out of compliance can put the original debt back in place.
How a PA Tax Lawyer Can Help
Every case is different, and no attorney can promise the IRS will accept an offer. What a Pennsylvania tax attorney can do is evaluate realistically whether an OIC fits your finances or whether another option — such as an installment agreement or currently-not-collectible status — serves you better; prepare complete and accurate financial disclosures, since incomplete documentation and unrealistic offer amounts are among the most common reasons offers fail; communicate with the IRS on your behalf; advise you of your rights if collection action such as a levy or wage garnishment is threatened; and handle an appeal if the offer is rejected. This applies to individuals and businesses alike — from sole proprietors, who can find general guidance on managing business tax obligations through the U.S. Small Business Administration, to companies registered with the Pennsylvania Department of State.
Talk to a Pennsylvania Tax Attorney About Your Tax Debt
If you are behind on federal taxes and wondering whether an Offer in Compromise or another resolution option is right for you, the attorneys at Premier Legal Solutions, LLC are available to discuss your situation. Call (267) 245-0649 or email info@1lawyer.com to schedule a consultation.
Attorney Advertising. This page is for general informational purposes only and does not constitute legal or tax advice. Reading this page or contacting the firm does not create an attorney-client relationship. Outcomes depend on the specific facts and circumstances of each matter, and prior results do not guarantee a similar outcome.