What is an Offer in Compromise?

An Offer in Compromise is a request made by a taxpayer to settle their tax debt for less than the full amount owed, effectively allowing them to pay a reduced amount rather than the total tax liability. This option is often pursued by individuals who are facing significant financial difficulties and are unable to pay their tax debts in full. The offer is based on a taxpayer’s ability to pay, income, expenses, and asset equity, leading to a negotiation process with the tax authority.

The other options do not align with the specific definition of an Offer in Compromise. For example, a payment plan arrangement involves agreeing to pay the debt in installments over time, rather than offering a reduced sum. A form of bankruptcy is a legal proceeding that helps individuals manage or discharge their debts but is distinct from an Offer in Compromise. Lastly, a loan modification attempt pertains to altering the terms of a loan agreement in order to make payments more affordable, which is not directly related to settling tax debts. Thus, the essence of an Offer in Compromise is the negotiation for a lower settlement amount.