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Effective Tax Administration
The majority of Offer in Compromises filed by taxpayers are filed on the basis of “Doubt as to Collectability” claiming that based on their financial information they do not have the ability to pay. Generally, when a taxpayer files an Offer in Compromise on this basis, the IRS does not look into the taxpayer’s specific facts such as their age, health or exceptional circumstances as part of their review process.
A rare exception when the IRS takes into consideration such factors such as age and health is when a taxpayer files an Offer in Compromise on an Effective Tax Administration (ETA) basis. When an ETA Offer is filed the taxpayer states that “I owe this amount and have sufficient assets to pay the full amount, but due to my exceptional circumstances, requiring full payment would cause an economic hardship or would be unfair and inequitable.” With an ETA Offer, the taxpayer does not offer any asset that he is dependent upon or that would cause the taxpayer a financial hardship if liquidated.
With an ETA Offer, the taxpayer is claiming that although the taxpayer has the ability to full pay the back tax liability there are exceptional circumstances or a special situation exists that collection of the full tax liability through liquidation of the taxpayer’s assets would be detrimental.
Although this type of an Offer in Compromise is listed on the Form 656, in Item 6 as a basis for taxpayers to select to compromise with the IRS, the current trend with the IRS is to reject these types of Offers. In consideration of this trend, a more viable alternative for a taxpayer in this type of situation may be to have their account placed on a Currently Not Collectible status. In most cases, the factual circumstances for a taxpayer who is a candidate for an ETA Offer are the same for a taxpayer who is a candidate for a Currently Not Collectible status. For Currently Not Collectible status the underlying issue is that the taxpayer cannot afford an Installment Agreement and that liquidation of particular assets is either not feasible or would cause a financial hardship. Thus, prior to filing an ETA Offer in Compromise consideration should be given to having the account placed on a Currently Not Collectible status as an alternative.
Related Links
- Offer in Compromise
- Services: Offer in Compromise
- Form 656, Offer in Compromise
- Legitimacy of an OIC
Source: RoniDeutch.com
