In certain special cases the IRS will accept an Offer in Compromise where the taxpayer does not dispute the liability and appears to have enough assets and/or income to pay the debt in full.
Effective Tax Administration
Offers falling into this category are called Effective Tax Administration offers.
Congress has authorized the IRS to accept less than the full amount of taxes, penalties and interest a taxpayer owes where the collection of the full liability would create an undue hardship for the taxpayer and where exceptional circumstances exist that render collection of the full liability detrimental to voluntary compliance by other taxpayers.
Acceptance Would Not Undermine Compliance
The IRS will not accept an Effective Tax Administration offer, if it determines that a compromise of the liability would undermine compliance by other taxpayers.
Factors Considered
The IRS considers a number of factors before making a final determination of whether or not to accept the offer.
The factors the IRS considers are
- Taxpayer is unable to work because of a disability.
- The liquidation of taxpayer’s assets would prevent the taxpayer from being able to meet basic living expenses; and
- The sale of the taxpayer’s assets would have adverse consequences on the taxpayer.
Compliance Record of Taxpayer Considered
If the taxpayer has a good record of past compliance with the federal tax laws that factor will be weighed in his or her favor.
This offer in compromise based on effective tax administration allows some taxpayers who are undergoing severe hardship the opportunity to have their tax liabilities reduced even though they technically can pay the full balance.
Effective Tax Administration Offers Very Difficult to Get
We have had several of these offers accepted over the years and in all cases the taxpayers were elderly and unable to work and needed what assets they had to fund their future living expenses.
We do not recommend the filing of an effective tax administration offer for people who are relatively young and able bodied.