Taxpayers who have received an audit notice from the Internal Revenue Service might be in luck if there are doubts about their liability or collectability. There are even other exceptional circumstances for the IRS to accept what is called an Offer in Compromise. Lone Star Legal Aid’s Low Income Taxpayer Clinic can help with this!
What is an Offer in Compromise? An agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer’s tax liabilities for less than the full amount owed. Usually, taxpayers who can afford to make payments via an installment agreement will not qualify for an OIC.
Who is eligible? Taxpayers who have filed all tax returns, made all required estimated tax payments for the current year and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.
The IRS may accept an OIC based on three grounds:
- Doubt as to liability – A compromise meets this only when there is a genuine dispute as to the existence or amount of the correct tax debt under the law.
- Doubt as to collectability – A compromise meets this only when the taxpayer’s assets and income are less than the full amount of the tax liability.
- Effective Tax Administration – A compromise meets this when requiring payment in full would either create an economic hardship or would be unfair because of exceptional circumstances.
Low Income Taxpayers are usually eligible for our assistance in these matters and would not have to do this alone. Although the forms are available via IRS.gov, an attorney can help fill them out for you, communicate with the IRS on your behalf, and help you better understand what is going on. If you are low income or speak English as a second language, our Low-Income Taxpayer Clinic can evaluate your situation and provide help at no cost.
There is an application fee for an Offer in Compromise under usual circumstances. This fee is waived if the OIC is based on doubt as to liability or if the taxpayer qualifies for the low-income exception. For the IRS, this exception applies if the taxpayer’s total monthly income falls at or below 250% of the federal poverty guidelines.
Remember, the IRS can audit you for the past three years or even longer if there is a reasonable belief that there is fraud involved. Remember that if you sign a tax return, you are agreeing that everything on it is correct. If there are fraudulent items on your return, you will be held responsible. Don’t be fooled by tax preparers who promise to get you a higher refund – your refund should only reflect what you are actually eligible for.
Do research on your tax preparer and make sure they are reputable. If you make less than $55,000 a year, you are eligible for free tax preparation assistance through the IRS’s Volunteer Income Tax Assistance programs. You can find one in your area by going to www.irs.gov/vita or by calling 800-906-9887. The AARP also runs a Tax Counseling for the Elderly program for people 60 and over. These programs are staffed by trained volunteers. Most people who make under $55,000 have fairly simple returns, so you should not be paying hundreds of dollars for tax preparation.
Lone Star Legal Aid is a 501(c)(3) nonprofit law firm focused on advocacy on behalf of low-income and underserved populations. Lone Star Legal Aid serves the millions of people at 125% of federal poverty guidelines that reside in 72 counties in the eastern and Gulf Coast regions of Texas, and also 4 counties of southwest Arkansas. Lone Star Legal Aid focuses its resources on maintaining, enhancing, and protecting income and economic stability; preserving housing; improving outcomes for children; establishing and sustaining family safety and stability, health and well‐being; and assisting populations with special vulnerabilities, such as those who have disabilities, or who are elderly, homeless, or have limited English language skills. To learn more about Lone Star Legal Aid, visit our website at www.lonestarlegal.org.
Media contact: Clarissa Ayala