Offer In Compromise

AAA

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.

INVESTOPEDIA EXPLAINS '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. Promissory Estoppel

    The legal principle that a promise is enforceable by law when ...
  2. Back Taxes

    Taxes that have been unpaid in the year that they were due. Taxpayers ...
  3. Income Tax

    A tax that governments impose on financial income generated by ...
  4. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  5. 1040 Form

    The standard Internal Revenue Service (IRS) form that individuals ...
  6. Section 7702

    The section of the United States Internal Revenue Code that defines ...
RELATED FAQS
  1. What are some of the arguments against a value added tax (VAT)?

    Critics of the value-added tax, or VAT, system say that not only is it costlier to implement compared to the ad valorem system, ... Read Full Answer >>
  2. What are the differences between regressive, proportional and progressive taxes?

    Tax systems fall into three main categories within the tax code: regressive, proportional and progressive taxes. Regressive ... Read Full Answer >>
  3. What's the difference between the marginal tax rate system and a flat tax?

    In modern economics, there are two main types of tax systems: marginal tax rate and flat tax rate. Under a marginal system, ... Read Full Answer >>
  4. Is the marginal tax rate a progressive tax?

    The marginal tax rate is a type of progressive tax system that imposes a higher income tax rate on people with higher incomes, ... Read Full Answer >>
  5. Are marginal tax rate schemes more fair than flat taxes?

    The proper framing of the question should be, "To whom is a marginal tax rate fairer," as progressive, marginal, and flat ... Read Full Answer >>
  6. What deductions, credits and exemptions depend on gross income calculations?

    The greatest challenge in determining your total tax liability stems from an incomplete understanding of what income figure ... Read Full Answer >>
Related Articles
  1. Taxes

    Before You Visit Your Tax Preparer: Do This

    The earlier you start preparing your tax records and documents, the more likely you are to have a smooth tax return experience – and all the tax benefits you're due.
  2. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  3. Savings

    Saver's Tax Credit: A Retirement Savings Incentive

    Here's another reason to put money toward your retirement nest egg.
  4. Retirement

    Avoiding Too Much Tax On Your Distributions

    IRA assets can't be taxed twice - find out how to avoid paying the second time around.
  5. Taxes

    Surviving The IRS Audit

    Keeping thorough records and knowing the penalties make this experience easier than you'd expect.
  6. Taxes

    Tablets To 1040s: How Taxes Began

    Ever dream of a world without tax? It existed - 3,000 years ago.
  7. 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.
  8. Taxes

    Avoiding Tax Scams

    These schemes can lead to fines - and even jail time - for both the scammer and his victims.
  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. Taxes

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center