Pros and Cons of a Transaction Offer While a compromise offer can reduce your tax burden and give you a temporary stay against property seizures and wage garnishments, it doesn't stop the IRS from imposing tax liens on your home or other property. The Offer in Compromise program has some negative aspects. However, considering that an accepted offer settles the tax bill and eliminates the tax problem, the positive seems to far outweigh the negative factors. You should weigh the pros and cons of the offer in terms of commitment, considering the other options available to you.
When deliberating on whether to choose this option, you should also consider the advantages and disadvantages. The OIC provides you with the opportunity to reduce your tax liability in relation to your current financial situation. While a commitment offer has many advantages, there are definitely disadvantages that come with it that may outweigh the benefits. The guidelines for commitment offers are very strict and, as a result, not everyone qualifies.
Taxpayers with low incomes and with very few assets are best suited for a commitment offer. If you rely on tax credits for a higher refund, you may be asked to waive them within the year following the acceptance of a commitment offer. This can significantly reduce your refund for the following fiscal year. Another factor that may deter you from making an offer is the fact that accepted offers of commitment are a matter in the public domain.
If you prefer to keep your tax information secret, you should know that you're giving up that level of privacy once your transaction offer is accepted. There are many advantages and disadvantages to deciding if a transaction offer is the right next step in resolving your debt to the IRS. A compromise offer can be a double-edged sword for many taxpayers. Let's look at some of the advantages and disadvantages of this tax remedy for your outstanding debt with the IRS.
That said, depending on your financial situation, reaching an agreement with the IRS through a compromise offer may be the second best option, after a number of other options you might want to consider. While that might be good news for some people, the fact that the IRS considers a compromise offer to “stick” to the CSED basically blocks it while their application is being reviewed. Making an offer that is accepted can also provide other relief, such as stopping IRS collection activities and unfreezing your bank account if it has been seized. In addition to the most obvious thing, the process has the potential to substantially reduce your tax liability to levels consistent with your financial capacity to pay, a commitment offer will put other creditors' collection activities on hold.
In conclusion, a transaction offer may be a viable option when it comes to resolving the outstanding tax liability with the IRS if you qualify. That said, ongoing collection activities, such as wage garnishment that began before the submission of the Commitment Offer, may continue after the submission. First, if you have a genuine “question” regarding your tax liability, you'll need to complete Form 656-L, Commitment Offer. If you're not sure what a compromise offer is, or even if you're eligible, you're not alone.
A compromise offer is an alternative if a taxpayer is unable to pay all of their tax debt to the IRS when it is due. Fortunately for you, a few years ago, the IRS lowered the bar on what constitutes a successful compromise offer. Second, the acceptance of a transaction offer will be allowed if it is determined that the amount you owe is fully collectible. I have represented clients by submitting commitment offers to the IRS and I have a high success rate.
While it's often said that the two things you can't escape in life are death and taxes, the IRS actually offers a way out for those who are behind on their payments. Therefore, if the taxpayer's OIC is accepted and paid in full, but then fails to pay or file income taxes or other future taxes, the IRS will revoke the Offer. Finally, an offer “can be accepted on the basis of effective tax administration” when there is no doubt that the tax is legally owed and that the full amount due can be collected, but requiring full payment would create economic difficulties or would be unfair and inequitable due to exceptional circumstances. (See item 204 above).