Offer In Compromise

DEFINITION of 'Offer In Compromise'

A program offered by the IRS to taxpayers who are unable to pay their tax debt. Those who qualify are allowed to make an offer in compromise, which is an offer to pay a lesser amount than that which is owed. The offer in compromise program is intended to allow taxpayers with substantial back taxes to settle their tax debt and start over with a clean slate, so that they can remain current on their taxes in the future.

BREAKING DOWN 'Offer In Compromise'

Taxpayers can find out whether they are eligible for an offer in compromise by consulting the checklist on Form 656 of the offer in compromise IRS package. In order to qualify, taxpayers must fall into at least one of the following three categories:

1) Uncertain Liability - Is tax really owed?
2) Uncertain Collectability - Taxpayer has no way to pay this debt.
3) Economic Hardship - Taxpayer must prove that paying the debt would be unfair or create further hardship.

According to the IRS, taxpayers should beware of promoter's claims that tax debts can be settled for "pennies on the dollar."

RELATED TERMS
  1. Tax Benefit

    A tax benefit is an allowable deduction on a tax return intended ...
  2. IRS Publication 594

    A document published by the Internal Revenue Service (IRS) that ...
  3. Office Audit

    An examination of a taxpayer's records by the Internal Revenue ...
  4. Substitute Return

    A tax filing that the IRS will create for a taxpayer in order ...
  5. Form 2848: Power of Attorney and ...

    A tax form distributed by the Internal Revenue Service (IRS) ...
  6. Revenue Agent's Report - RAR

    A detailed document describing an IRS examiner's audit findings ...
Related Articles
  1. Taxes

    Are IRS-Prepared Tax Returns The Solution To Our Tax Woes?

    The government is considering letting the IRS do your taxes for you. While this may sound great, there are plenty of reasons why you may not want to trust the IRS to calculate your tax return. ...
  2. Taxes

    How To Negotiate Back Taxes With The IRS

    Recently, the IRS has been more amenable to working out late tax payments. But you have to address the problem up front, and don’t keep Uncle Sam waiting on his tax money.
  3. Taxes

    The Truth About IRS Tax Settlement Firms

    These companies claim that they can reduce or even eliminate what you owe to the IRS. Find out the facts behind this alluring fiction.
  4. Taxes

    20 Tax Changes You Need To Know About

    Don't miss out on the tax changes. Here's a list that you need to know about.
  5. Taxes

    8 Tax Cuts Set To Expire In 2011

    Find out what the expiration of the Bush tax cuts in 2011 would mean for you.
  6. Taxes

    Give Your Taxes Some Credit

    A few tax credits can greatly increase the amount of money you get back on your return.
  7. Taxes

    Federal Tax Brackets

    Why do we have income tax brackets? What do they do for us? Read this to understand the basics and where to find your own bracket.
  8. Taxes

    How The Wealthy Slash Their Income Tax Bills

    Many of these tax-minimization strategies can be used by anyone. Find out how you can pay taxes like a millionaire.
  9. Options & Futures

    When You Can't Pay Uncle Sam

    If you can't pay your taxes, there are some steps you can take to protect yourself. Discover your options here.
  10. Insurance

    Getting A Job As The Tax Man

    If you'd like the IRS to pay you some money for a change, consider a career working in taxes.
RELATED FAQS
  1. Are progressive taxes ever more unfair that flat taxes?

    Learn more about progressive taxes and flat taxes. Find out why progressive taxes may be unfair for many taxpayers and why ... Read Answer >>
  2. Can the IRS take your house?

    Understand why a person would have his home seized by the IRS and what he can do to avoid it. Learn about the seizure process ... Read Answer >>
  3. Are marginal tax rate schemes more fair than flat taxes?

    Discover why marginal tax rates are used so widely as the fairest compromise between the two other extremes of tax code: ... Read Answer >>
  4. Can the IRS audit you after a refund?

    Learn how the U.S. Internal Revenue Service (IRS) can conduct a tax audit even after a taxpayer was issued a tax refund in ... Read Answer >>
  5. How do I find out what my tax bracket is?

    Learn the information you need to determine what your tax bracket is. Read Answer >>
  6. How is compound interest taxed?

    Understand the concept of compound interest as opposed to simple interest and learn the usual tax rate at which compound ... Read Answer >>
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center