Local Tax Matters
An Offer in Compromise is a formal agreement between a taxpayer (individual or business owner) and the Comptroller of Maryland that settles taxpayers’ 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.
The basics
An Offer in Compromise is a formal agreement between a taxpayer (individual or business owner) and the Comptroller of Maryland that settles taxpayers’ 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 to help you determine your eligibility to file.
Four grounds
Depending on the circumstances, there are multiple types of offers for which a taxpayer may be eligible, including:
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.
This offer is 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 would be DATCSC. Factors establishing special circumstances under DATCSC are not the same as those considered under ETA.
This offer is for taxpayers who can demonstrate that either paying the total amount of the 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 the taxpayer will not qualify for DATL, DATC, or DATCSC.
The math behind an offer
The IRS generally requires that any OIC based on collectability grounds made by a taxpayer be equal to or greater than the Reasonable Collection Potential (RCP), which is the IRS’s calculation of the taxpayer’s capacity to pay their tax debt. The RCP considers the value of the taxpayer’s assets, including real estate, vehicles, bank accounts, and other property that can be liquidated. Furthermore, the RCP considers the taxpayer’s expected future income, minus allowances for essential living expenses, to determine the total amount the IRS can reasonably expect to collect from the taxpayer.
Economic Hardship generally exists when a taxpayer cannot pay reasonable basic living expenses. In addition, characteristics that may qualify for consideration based on equity are:
Why it helps
An accepted Offer in Compromise can provide significant relief for taxpayers facing overwhelming tax debt. Some of the key benefits include:
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, providing them a fresh start.
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
To establish DATL, a taxpayer must submit proof that it does not or should not owe the tax assessed.
For offers submitted on the basis that a taxpayer cannot afford to pay the total tax debt, the Comptroller considers factors such as the taxpayer’s income, expenses, assets, and ability to pay when evaluating eligibility. In these circumstances, taxpayers must submit comprehensive financial information and supporting documentation.
For offers submitted on the basis that a taxpayer appears to be able to afford to pay their tax liability but will be able to only by suffering economic hardship, the Comptroller considers factors such as the taxpayer’s income, expenses, assets, and ability to pay when evaluating eligibility. In these circumstances, taxpayers must submit comprehensive financial information and supporting documentation.
For offers submitted on the basis that a taxpayer appears to be able to afford to pay their tax liability but will be able to only by suffering economic hardship and where collection would undermine public confidence that the tax laws are being administered in a fair and equitable manner, the Comptroller considers factors such as the taxpayer’s income, expenses, assets, and ability to pay when evaluating eligibility. In these circumstances, taxpayers must submit comprehensive financial information and supporting documentation.
Next steps
At Azarvand Tax Law, 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, a Maryland Installment Agreement or Penalty Abatement may be.
