There are two types of Offer in Compromise: “Doubt as to Liability” and “Doubt as to Collectibility”.
The most common type of Offer in Compromise is a “Doubt as to Collectibility”. This type of Offer in Compromise is an agreement submitted by the taxpayer to the IRS requesting the IRS accept less than the taxes, penalties and interest because the taxpayer cannot pay the tax liability. A “Doubt as to Liability” Offer in Compromise is filed when you have documentation that the IRS has made a mistake in determining your tax liability.
Each type of Offer in Compromise has to be submitted on the proper forms with appropriate documentation. Once an offer in compromise has been submitted, the IRS reviews your financial situation and they determine whether you have fairly represented your tax liability and your ability to pay your tax debt. After their review, they will either accept your offer or they will decline your offer with their own counter-offer. This process often includes negotiation with IRS officials and an understanding of the IRS rules for each individual state. Despite the technical difficulties, an Offer in Compromise is a great solution for clients with excessive tax debt.