Everyone wants to file an Offer in Compromise when they first hear about it, but unfortunately not everyone qualifies. Otherwise everyone would have their tax bill reduced or eliminated.
To qualify for proper consideration of your offer by the IRS, you must show them that you meet one of the following three conditions:
• There is some doubt as to whether the IRS can collect the tax bill from you — now or in the foreseeable future. The IRS calls this “doubt as to collectibility.”
• There is some doubt as to whether you owe the tax bill. The IRS calls this “doubt as to liability.” This condition is unusual.
• Due to exceptional circumstances, payment of your full tax bill would cause an “economic hardship” or would be “unfair” or “inequitable.”
The vast majority of people who file an Offer in Compromise qualify under the first condition “doubt as to collectibility.” This basically means that if the IRS looks at your financial condition, they will determine that they are not going to be able to collect the money from you. Here is a case where it pays to have low or no income. It also helps if you are older as you have fewer years of future earnings potential.
The problem is you need to prove to the IRS that you can’t afford to pay them and that is not a simple process.