Arizona Tax Resolution
Arizona Offer in Compromise Attorney
An Offer in Compromise may allow an eligible taxpayer to resolve certain tax liabilities for less than the full amount owed. Learn how the IRS evaluates settlement offers, what financial information may be required, and when to consider legal guidance for federal or Arizona tax debt.
What Is an Offer in Compromise?
An Offer in Compromise (OIC) is a formal agreement through which the Internal Revenue Service (IRS) may accept less than the full amount of an eligible federal tax liability. The federal program is governed by applicable law, including Internal Revenue Code Section 7122.
The IRS reviews the taxpayer's financial circumstances and other relevant facts before deciding whether to accept an offer. Depending on the circumstances, an offer may be considered when the taxpayer cannot reasonably pay the full liability, there is a legitimate dispute about the amount owed, or other qualifying circumstances support a compromise under the applicable rules.
An OIC is not automatic tax forgiveness, and not every taxpayer qualifies. Before applying, it is important to understand the eligibility requirements, the financial disclosures involved, the costs of submitting an application, and other available tax resolution options.
For the federal program's official rules and application guidance, review the IRS Offer in Compromise information.
An OIC Requires More Than Financial Hardship
Financial hardship may be relevant, but the IRS evaluates an offer under specific legal and financial standards. Income, allowable living expenses, assets, liabilities, future earning capacity, and the circumstances of the tax debt may all matter. A taxpayer should not assume that owing a large balance—or being unable to pay it immediately—means an offer will be accepted.
How the IRS Evaluates an Offer in Compromise
The IRS generally considers whether the proposed settlement is appropriate under the applicable compromise rules. The analysis depends on the facts of the case and the supporting documentation.
Ability to Pay
The IRS reviews financial information to estimate what can reasonably be collected from available assets and income over time under its applicable standards.
Dispute About Liability
In appropriate cases, an offer may address a genuine dispute about whether the tax liability is legally owed or whether the amount assessed is correct.
Other Qualifying Circumstances
Certain cases may involve exceptional circumstances in which collection of the full amount would create economic hardship or be unfair under the applicable tax rules.
These are different grounds for consideration, not interchangeable guarantees of acceptance. The appropriate basis for an offer depends on the taxpayer's circumstances and the applicable IRS requirements.
Who May Qualify for an IRS Offer in Compromise?
Before submitting an OIC, taxpayers generally need to meet the IRS's applicable filing and payment-compliance requirements. The requirements can vary with the taxpayer's circumstances and the type of tax liability.
Important preliminary requirements
- File all required tax returns that are due, subject to applicable IRS rules.
- Receive a bill for at least one tax debt included in the offer, as required by the IRS.
- Make required estimated tax payments for the current year, when applicable.
- If the taxpayer is an employer, remain current with required federal tax deposits.
- Not be in an open bankruptcy proceeding when applying for an IRS OIC.
Meeting preliminary requirements does not mean the IRS will accept the offer. The taxpayer must also provide the required forms, financial disclosures, and supporting documents and demonstrate that the proposed compromise meets the applicable standards.
The IRS provides official eligibility guidance and an online pre-qualifier through its Offer in Compromise resource. The pre-qualifier is a screening tool, not an approval or guarantee.
What Financial Information May Be Needed?
An OIC application may require detailed information about the taxpayer's household or business finances. Complete and accurate disclosures are important because the IRS uses the information to evaluate the proposed settlement.
- Income: wages, self-employment income, business revenue, retirement income, and other relevant sources.
- Living or operating expenses: housing, utilities, transportation, healthcare, and other expenses considered under the applicable IRS standards.
- Assets: bank accounts, real estate, vehicles, investments, business interests, and other property.
- Debts and obligations: loans, secured debts, and other financial commitments relevant to the analysis.
- Supporting records: tax returns, pay statements, bank statements, expense records, and other documents requested for the case.
The exact information required depends on the taxpayer's situation. Individuals and businesses may have different forms and documentation requirements. Do not omit assets, income, or other requested information; incomplete or inaccurate disclosures can delay review or undermine an application.
The Offer in Compromise Process
Review the Tax Liability
Confirm the tax years, assessed balances, filing status, collection history, and whether the amount owed or the taxpayer's ability to pay should be examined further.
Analyze the Finances
Organize income, expenses, assets, and liabilities to evaluate whether an OIC may be appropriate and what other resolution options should be considered.
Prepare the Application
Complete the applicable IRS forms, gather supporting records, determine the proposed payment terms, and address the required application fee and initial payment rules.
Respond and Follow Through
Respond to IRS requests, review the determination, and comply with the terms and ongoing tax obligations if an offer is accepted.
Processing time and outcomes vary. The IRS may request additional information, reject an offer, or determine that a different resolution option is more appropriate. Taxpayers should review the current IRS instructions before submitting an application.
OIC Application Fees and Payments
An IRS Offer in Compromise generally requires an application fee and an initial payment, subject to applicable exceptions. The IRS currently identifies a $205 application fee for most applications. Qualifying low-income applicants may be exempt from the application fee and certain payment requirements while the offer is being reviewed.
Payment requirements depend on the option selected. Under the IRS's lump-sum option, the initial payment is generally 20% of the offer amount. Under the periodic-payment option, the taxpayer generally makes an initial payment and continues making the required periodic payments during review. Specific rules and exceptions apply, so verify the current requirements before filing.
Application fees and payments may be nonrefundable even if the IRS does not accept the offer. Review the current instructions directly through the IRS Offer in Compromise website before submitting funds.
Potential Benefits and Important Limitations
When accepted and properly completed, an OIC can provide a defined way to resolve eligible tax liabilities for less than the full balance. Whether it is a suitable option depends on the taxpayer's circumstances and the terms of the accepted offer.
Potential Advantages
- A possible settlement for less than the full eligible liability.
- A defined payment arrangement if the offer is accepted.
- A path toward resolving certain outstanding tax obligations when the taxpayer meets the applicable requirements.
Important Limitations
- Acceptance is not guaranteed.
- The application requires financial disclosures and supporting documentation.
- Fees or payments may be due even when an offer is not accepted.
- Compliance requirements may continue after acceptance, and failure to meet the terms can have serious consequences.
Does Filing an Offer Stop IRS Collection Activity?
Filing an OIC does not mean that every collection action stops immediately in every circumstance. Federal law and IRS procedures govern how an offer affects collection activity, and exceptions may apply. Taxpayers should not assume that filing an application automatically resolves an active levy, lien, lawsuit, or other collection concern.
If you have received an IRS levy notice, lien notice, collection letter, or deadline-sensitive communication, review it promptly. The appropriate response may depend on the notice, the stage of collection, and whether other rights or deadlines apply.
What If an Offer in Compromise Is Not the Right Option?
An OIC is only one potential method of resolving tax debt. Depending on the taxpayer's financial circumstances, compliance history, and the nature of the liability, other approaches may be worth evaluating.
Installment Agreement
An installment agreement allows eligible taxpayers to pay tax debt over time under an approved payment arrangement.
Learn about tax installment agreementsCurrently Not Collectible Status
In qualifying cases, the IRS may temporarily delay certain collection efforts because the taxpayer cannot afford to pay. This status does not erase the tax debt, and collection may resume if circumstances change.
Learn about Currently Not Collectible statusOther Tax Resolution Options
Depending on the facts, other possibilities may include penalty relief, review of a disputed assessment, or another appropriate resolution strategy.
Explore tax debt resolution optionsArizona State Tax Debt and Offers in Compromise
Federal IRS tax debt and Arizona state tax debt are handled by different tax authorities. An IRS Offer in Compromise application does not, by itself, settle a separate balance owed to the Arizona Department of Revenue (ADOR).
Arizona has its own tax administration procedures and requirements. A taxpayer considering a state tax compromise should review the applicable ADOR process, forms, eligibility criteria, and supporting documentation. The state and federal processes should not be assumed to have identical rules or outcomes.
For official Arizona tax information, visit the Arizona Department of Revenue. For questions about the state's Offer in Compromise process, use the department's official contact information and current guidance.
Carr Law Firm provides tax law representation in Arizona. The appropriate course of action depends on whether the tax issue involves the IRS, ADOR, or both, along with the specific facts of the matter.
How Carr Law Firm May Help
Evaluating an Offer in Compromise involves more than selecting a settlement amount. The taxpayer's liability, financial disclosures, compliance status, and available alternatives all affect the analysis.
Carr Law Firm provides tax law representation to individuals and businesses facing tax issues. Founding attorney Nathan E. Carr has more than 25 years of legal experience and a master's degree in taxation, according to the firm's published information.
Depending on the matter and the services agreed upon, legal assistance may include reviewing the tax issue, evaluating potential resolution options, identifying relevant documentation, and helping the taxpayer understand the applicable process and requirements.
A review of the circumstances can help determine whether an OIC is worth pursuing or whether another approach may be more appropriate. No particular outcome can be guaranteed.
Frequently Asked Questions About Offers in Compromise
Can the IRS settle my tax debt for less than I owe?
Yes, the IRS may accept an eligible Offer in Compromise for less than the full amount of certain tax liabilities. Acceptance depends on the applicable legal standards, the taxpayer's financial circumstances, and the facts of the case.
Does everyone with tax debt qualify for an OIC?
No. Taxpayers must meet applicable preliminary requirements, submit the required information, and satisfy the standards for an offer. The IRS reviews each application based on the relevant circumstances.
Do I need to file my tax returns before applying?
Generally, taxpayers must have filed all required returns that are due to meet the IRS's preliminary requirements. Other compliance rules may apply, so confirm the current instructions for your situation.
Will an OIC stop wage garnishment or bank levies?
Do not assume that submitting an offer immediately stops every collection action. The effect depends on the applicable law, IRS procedures, and the circumstances of the case. If a levy or other collection action is pending, obtain advice about the specific notice and available options.
Can I apply for an OIC while in bankruptcy?
An open bankruptcy proceeding generally prevents a taxpayer from applying for an IRS Offer in Compromise. Bankruptcy and tax resolution issues can interact in complex ways, so the timing and available options should be reviewed carefully.
Does an IRS offer settle Arizona state tax debt too?
No. An IRS offer addresses eligible federal tax liabilities. A separate balance owed to the Arizona Department of Revenue must be addressed under the applicable Arizona procedures.
What if the IRS rejects my offer?
The next step depends on the reason for rejection and the taxpayer's circumstances. Review the IRS determination and any applicable response deadlines. Other resolution options may be available, but they should be assessed based on the specific facts.
Discuss Your Tax Resolution Options
If you owe federal or Arizona state taxes, a review of your circumstances can help clarify whether an Offer in Compromise or another tax resolution option may be appropriate. Contact Carr Law Firm to discuss your situation and the available next steps.
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Important Notice: This article is for general informational purposes only and is not legal, tax, or financial advice. Tax laws, administrative procedures, and eligibility requirements may change. Whether an Offer in Compromise or another tax resolution option is available depends on the specific facts and applicable law.
Reading this article or contacting Carr Law Firm does not, by itself, create an attorney-client relationship. Do not rely on this information as a substitute for advice about your particular circumstances. Verify current requirements with the appropriate tax authority and consult a qualified professional when needed.