Qualifying conditions

At least one of three conditions must be met to qualify a taxpayer for consideration of an OIC settlement:

• Doubt as to Liability — Debtor can show reason for doubt that the assessed tax liability is correct
• Doubt as to Collectibility — Debtor can show that the debt is likely uncollectable in full by the IRS under any circumstances
• Effective Tax Administration — Debtor does not contest liability or collectibility but can demonstrate extenuating or special circumstances that the collection of the debt would "create an economic harship or would be unfair and inequitable." This Offer in Compromise program is available for any taxpayer, but is primarily used by individuals that are elderly, disabled, or have special extenuating circumstances.
  

   Doubt as to collectibility

Doubt as to collectibility means that you, the taxpayer, will never be able to fully pay the tax bill. The IRS will accept a settlement based on a specfic and prescribed formula:

If a you believe he or she qualifies, the taxpayer completes a financial statement on a form provided by the Internal Revenue Service.

IRS will not settle your case for an arbitrary amount. Some tax representation firms today sell customers on the idea of doing an Offer in Compromise for which they do not actually qualify, so a taxpayer must exercise due diligence themselves when considering submitting an Offer in Compromise either themselves or through a representative.

A third payback option, called a Deferred Periodic Payment Offer, allows you to pay the Offer amount over the remaining life of the collections statute. All Federal taxes in the United States have an initial 10 year statute of limitations on collection, starting from the date the tax was assessed. The statute is suspended during certain actions, such as during the time an Offer is being investigated, which extends the statute of collections by an equal number of days. Under a Deferred Periodic Payment Offer, you must include in your offer the realizable equity in assets plus the value of your monthly disposable income over the entire remaining life of the collections statute.

If you have less than 60 months remaining in your collection statute, then you are only required to offer the realizable equity in assets plus your disposable income over the remaining months of the collection statute. This rule applies regardless of whether you intend to submit a Lump Sum Cash Offer, Short Term Periodic Payment Offer, or Deferred Periodic Payment Offer.

If your disposable income is $0, you do not expect to have disposable income for some years, you have special circumtances, you have zero assets and if paying this debt would cause a hardship, the IRS has been known to accept ONE DOLLAR to settle your tax liability through the Offer In Compromise.

  Effect of an Offer in Compromise on IRS levy or lien

An Offer in Compromise will have no effect upon a tax lien. The lien will remain in effect until the offer is accepted by the IRS and the full amount of the offer has been paid in full. Once the offered amount has been paid, the taxpayer should request that the IRS remove the lien.

An offer in compromise will stop tax levies. That regulation states that the IRS will not levy upon a taxpayer's property while a valid offer in compromise is pending and, if rejected, for thirty days after the rejection. If the taxpayer appeals the rejection, the IRS cannot levy while the appeals process is ongoing.

In 2004, the IRS issued a consumer alert warning of promoters' claims to settle debts for "pennies on the dollar" through the OIC program. The warning addressed companies charging high fees to consumers who may not be eligible for the program; all other payment means would have to be exhausted, including installment payments. A recommendation is to check with the Better Business Bureau before contracting any firm to resolve tax problems. In 2008, one of the largest tax representation firms in the United States, settled a lawsuit with 18 states for fraud and misrepresentation, agreeing to refund $1.5 million to consumers and change the way it advertises.