Federal Tax Matters
An Offer in Compromise settles your tax liabilities for less than the full amount owed — a genuine fresh start for eligible taxpayers. If you’re facing mounting tax debt, our attorneys and CPAs help you determine eligibility and file.
The basics
An Offer in Compromise is a formal agreement between a taxpayer (individual or business owner) and the Comptroller of Maryland that settles the taxpayer’s tax liabilities for less than the total amount owed. This program can provide eligible taxpayers a fresh start by allowing them to resolve their tax debt for an amount they can afford. If you are facing mounting tax debt, our team at Azarvand Tax Law can help you navigate the complexities of the Offer in Compromise program and determine your eligibility to file.
Four grounds
Depending on your circumstances, you may be eligible under one of several bases:
This offer is for taxpayers who believe they do not owe the tax debt assessed by the Comptroller of Maryland. It allows them to settle the debt for less than the total amount if they can provide evidence to support their claim.
This offer is for taxpayers who cannot pay the total amount of their tax debt due to financial hardship. If approved, the Comptroller of Maryland will settle the total amount of the tax debt for less than the actual amount owed.
For taxpayers who cannot pay in full but have identified special circumstances that may qualify for an OIC for less than their deemed Reasonable Collection Potential. Because the taxpayer cannot pay in full, the basis is not ETA, but DATCSC. Factors establishing special circumstances under DATCSC are not the same as those considered under ETA.
For taxpayers who can demonstrate that either paying the total tax debt would create an undue economic hardship or, due to exceptional circumstances, collection of the total liability would undermine public confidence that the tax laws are being administered fairly and equitably. ETA offers only apply when the taxpayer can pay the liability in total — meaning they will not qualify for DATL, DATC, or DATCSC.
The math behind an offer
The IRS generally requires that any OIC based on collectability grounds be equal to or greater than the Reasonable Collection Potential (RCP) — the IRS’s calculation of your capacity to pay. The RCP considers the value of your assets, including real estate, vehicles, bank accounts, and other property that can be liquidated. It also considers your expected future income, minus allowances for essential living expenses, to determine the total the IRS can reasonably expect to collect.
Economic hardship generally exists when a taxpayer cannot pay reasonable basic living expenses. Characteristics that may qualify for consideration based on equity include:
Why it helps
An accepted offer can provide significant relief for taxpayers facing overwhelming tax debt.
An Offer in Compromise allows taxpayers to settle their tax debt for less than the total amount owed, providing a fresh start.
For taxpayers experiencing financial hardship, an Offer in Compromise can provide much-needed relief by reducing and resolving the amount they owe and making it easier to manage their finances.
By entering into an Offer in Compromise, taxpayers can avoid collection actions such as levies, driver’s license suspensions, and wage garnishments — giving them peace of mind and stability.
What to submit
A taxpayer must submit proof that it does not or should not owe the tax assessed.
Submitted on the basis that a taxpayer cannot afford to pay the total tax debt. The Comptroller weighs income, expenses, assets, and ability to pay; comprehensive financial information and supporting documentation are required.
Submitted where a taxpayer appears able to pay but only by suffering economic hardship. The Comptroller weighs income, expenses, assets, and ability to pay; comprehensive financial information and supporting documentation are required.
Submitted where a taxpayer appears able to pay but only by suffering economic hardship, and where collection would undermine public confidence that the tax laws are administered fairly and equitably. The Comptroller weighs income, expenses, assets, and ability to pay; comprehensive financial information and supporting documentation are required.
Next steps
Our experienced tax attorneys and CPAs have helped clients successfully negotiate offers with the IRS and state taxing authorities. We understand the complexities of the tax code and are committed to finding the best possible solution for you — and if an offer isn’t the right fit, an Installment Agreement may be.
