Don’t Believe These Myths About the IRS Offer in Compromise

You may have heard about the IRS option to “settle” tax debt, called the offer in compromise.

Most people who hear about the program have one of two reactions:

  • It’s too good to be true and isn’t a legitimate option, or
  • If I find a good negotiator, I can get the best deal from the IRS.

Both those perspectives are wrong. Here’s why.

Myth 1: “Settlement is too good to be true.”

The program does exist, and it really works for some people. The IRS doesn’t want to spend the 10 years it has to collect tax debt trying to collect it from someone who simply can’t pay.

So, the IRS offer in compromise program provides a fresh start to qualified taxpayers in hardship circumstances. The IRS is willing to accept a settlement amount and write off the remaining debt. People who get an offer in compromise also have to stick to some other conditions to keep the agreement, like letting the IRS keep their refund the following year and committing to filing and paying all their taxes for the next five years.

Myth 2: “The key to settling tax debt is negotiating with the IRS.”

The offer in compromise program is not a test of negotiating skills. People who hold this incorrect assumption think they can just lowball the government, stick to their position, perhaps walk away from the table once or twice, and come out with a great offer amount.

In reality, getting an offer in compromise is a matter of simple math. The IRS will run a formula based on your income, assets, and allowable expenses (based on extensive documentation and financial statements you have to submit). The result is the amount the IRS thinks is reasonable to collect from you – and the IRS won’t take less than that.

A knowledgeable tax professional can help you determine the correct offer amount by knowing the standards the IRS uses and which expenses you can and can’t include. There are a few gray areas, but even those are based on which expenses should be allowed (back to the math problem).

Get the facts instead

Avoid any tax professional who promises you an offer in compromise without knowing anything about your financial situation.

However, if you owe tax debt that you don’t think you can pay, it’s worth evaluating whether an offer in compromise is a good solution for you, especially if you don’t have any assets, you’re living modestly, and you’re struggling to get by each month.

Even if you don’t qualify for an offer in compromise, there are other options you may qualify for, like deferred payment or a monthly payment plan. Learn more about what to do when you can’t pay your taxes.

A tax professional can also help. Your tax pro can deal with the IRS, help you evaluate all your options and request an agreement from the IRS for you. Learn more about H&R Block’s Tax Audit & Notice Services. Or make an appointment for a free consultation with a local tax professional by calling 855-536-6504 or finding a local tax pro.

Get help from an expert

Your local H&R Block tax pro can look into your issue and deal with the IRS for you.

Schedule a Free Consultation

Or call 855-536-6504

Related Information

What To Do If You Can’t Pay Your Taxes

Learn about the different options when you can't pay or still owe money from a past return from the tax experts at H&R Block.

The Top 10 Consequences of Tax Debt

Learn what to do when you can’t pay your taxes – to avoid these 10 consequences of tax debt. Get the facts from the tax experts at H&R Block.

Don’t Pay an IRS Penalty Without Looking Into Penalty Relief

The IRS grants four types of penalty relief, but many taxpayers don't ever ask. Learn how to request penalty abatement from the IRS.

Power of Attorney: It’s How Your Tax Pro Deals with the IRS For You

Learn the three main benefits of engaging a power of attorney to research your IRS account and resolve your tax problems. Get the facts from the experts at H&R Block.

The IRS Offers Alternatives When You Can’t Pay Your Tax Bill

Get the facts from H&R Block about IRS payment options when you can't pay your tax bill, including short-term extensions, monthly payment plans, and more.