Effective Tax Administration Offer in Compromise
If you do not qualify for Doubt as to Collectability or Doubt as to Liability Offer in Compromise, you may qualify for Effective Tax Administration Offer in Compromise. There must be an exceptional circumstance to qualify.
There are two types of Effective Tax Administration Offer in Compromises. Type 1 is based on hardship. Type 2 is based on equity or public policy.
Effective Tax Administration – Hardship
The first type of Effective Tax Administration Offer in Compromise is based on hardship. You may qualify if you have the ability to pay all the back taxes, but due to exceptional circumstances, paying the full amount of taxes would result in economic hardship.
Example 1 – You are on a fixed income. You have a home worth $100,000, which is paid in full. You could sell the home to pay all the back taxes, but if you sold the home, you would be forced to purchase a new home or pay rent, which you cannot afford. Selling the home to pay back the taxes will cause you an economic hardship.
Example 2 – You are caring for your disabled child. You earn enough income to pay back the taxes, but the extra funds are used to care for your disabled son. You cannot afford to care for your son and pay back the taxes.
Example 3 – You are retired and have a 401K. You could pay back all the taxes if the 401K were liquidated, but then you would not sufficient funds to remained retired. This would cause an economic hardship.
Effective Tax Administration – Equity or Public Policy
The second type of Effective Tax Administration is based on Equity or Public Policy. There is an exceptionally special reason to accept an Offer. The IRS has stated that an Effective Tax Administration Offer based on Equity or Public Policy is rare.
5 Examples of Special Reasons
- The IRS made a processing error. You may be able to get an Offer based on the corrected amount.
- The IRS provides you with erroneous advice.
- The IRS unreasonably delays notifying you of additional taxes. As a result, you are assessed a large amount of penalties and interest.
- The taxes owed were due to the criminal conduct of someone else.
- There is clear evidence that not accepting the Offer would impact the local community.
The following are reasons for which the IRS will not accept an Effective Tax Administration Offer in Compromise based on Equity or Public Policy.
– Your CPA or accountant made a mistake.
– You received bad advice from a Tax Attorney or CPA.
– The Offer is based on your belief that the tax law is unfair.
– You got caught up in a tax shelter.
– The IRS issued you an erroneous notice of the taxes owed. You relied on the notice and paid the full balance.
Do Not Qualify for the Other 2 Types of Offers
In order to qualify for Offer in Compromise Effective Tax Administration, you must not qualify for Doubt as to Collectability or Doubt as to Liability Offer in Compromise. You will need to fill out Form 656, Offer in Compromise Booklet, which must demonstrate that you do have the ability to pay back all the taxes.
Learn More About Calculating an Offer in Compromise
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4 Steps to Calculating an Offer in Compromise
Learn step-by-step how to calculate an offer in compromise and whether a tax settlement is possible for your situation.
Effective Tax Administration – 11 Steps to Acceptance
- Download Form 656, Offer in Compromise Booklet, Instructions and forms to file an Offer
- Find out if you qualify for another type of Offer in Compromise? If you don’t, then proceed
- Prepare a case for Effective Tax Administration
- Mail the prepared Effective Tax Administration Offer in Compromise via Certified Mail
- The IRS will send you a letter of Offer submission within 30 days.
- The IRS will hold off on collecting back taxes while your Offer is pending
- An Offer based on hardship will be assigned to an IRS Offer Specialist. An Offer based on equity or public policy will be assigned to a special IRS office in Austin, TX.
- The IRS will review the Offer with you or your representative
- The IRS will accept or deny the Effective Tax Administration Offer
- If your Effective Tax Administration Offer is denied, you have the right to appeal the decision
- If your Effective Tax Administration Offer is accepted, you have five months to full pay the settlement amount