Yes, the IRS can consider accepting only part of what you owe through an Offer in Compromise (OIC). An OIC is an agreement between a taxpayer and the IRS that settles a tax liability for less than the full amount owed.
Legal Reasoning and Rationale:
- Authorization and Grounds for Compromise:
- Under IRC § 7122(a), the Secretary of the Treasury is authorized to compromise any civil or criminal case arising under the internal revenue laws.
- The IRS may accept an OIC based on three grounds:
- Doubt as to Collectibility (DATC): When the taxpayer's assets and income are insufficient to pay the full amount.
- Doubt as to Liability (DATL): When there is a genuine dispute as to the existence or amount of the correct tax debt.
- Effective Tax Administration (ETA): When full payment would cause economic hardship or would be unfair and inequitable.
- Submission and Payment Requirements:
- IRC § 7122(c) outlines the rules for submitting an OIC, including the requirement for partial payments with the submission:
- Lump-Sum Offers: Must be accompanied by a payment of 20% of the offer amount.
- Periodic Payment Offers: Must include the first proposed installment payment.
- Low-income taxpayers, defined as those with adjusted gross income not exceeding 250% of the applicable poverty level, are exempt from these payment requirements.
- Evaluation Standards:
- IRC § 7122(d) mandates that the IRS establish guidelines to determine whether an OIC is adequate and should be accepted. These guidelines include allowances for basic living expenses to ensure taxpayers can maintain a reasonable standard of living.
- Administrative Review and Acceptance:
- IRC § 7122(e) requires an independent administrative review of any rejection of an OIC before it is communicated to the taxpayer.
- An OIC is deemed accepted if not rejected within 24 months of submission (IRC § 7122(f)).
- Special Considerations:
- The IRS cannot accept an OIC if the taxpayer can pay the full liability through a lump sum or installment payments within the statutory collection period, unless special circumstances exist.
- Offers may be rejected for public policy reasons if acceptance would be detrimental to fair tax administration.
Practical Steps:
- Form 656: To apply for an OIC, you must complete and submit Form 656, Offer in Compromise, along with the required financial documentation (Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses).
- Application Fee and Initial Payment: Include the application fee and initial payment unless you qualify for a low-income waiver.
- Review and Decision: The IRS will review your financial situation, including your ability to pay, income, expenses, and asset equity, to determine if the offer is acceptable.
In summary, the IRS has the authority to accept less than the full amount owed through an OIC, provided the taxpayer meets the criteria and follows the submission procedures outlined in the Internal Revenue Code and Treasury Regulations.
Sources:
§ 7122. Compromises
Publication 1 (9/2017)
IRM Part 5. Collecting Process. Chapter 8. Offer in Compromise. Section 1. Overview
IRM Part 8. Appeals. Chapter 23. Offer in Compromise. Section 1. Offer in Compromise Overview
IRM Part 8. Appeals. Chapter 22. Collection Due Process. Section 7. Alternatives to Collection Action
