Offer in Compromise Types
Three Offer in Compromise Types
According to IRS regulations and guidance, compromises can be granted for one of the following three reasons:
- Doubt as to liability (DATL)—Doubt exists that the assessed tax liability is correct.
- Doubt as to collectability (DATC)—Doubt exists that the taxpayer could ever pay the full amount of tax owed.
- Effective Tax Administration (ETA)—No doubt exists that the taxpayer can fully pay the taxes owed, but exceptional circumstances nonetheless lead the IRS to compromise.
IRS has two categories of ETA offers, hardship and non-hardship. According to IRS’s regulations, hardship ETA offers are those that IRS grants because collecting the full liability would create economic hardship for the taxpayer, while non-hardship ETA offers are granted on a basis of equity and public policy. (How economic hardship qualifies a taxpayer for an ETA offer will be addressed later in the report.) According to IRS, equity and public policy considerations may be used to accept an offer when doing so would not adversely affect voluntary compliance for taxpayers in general.
While an offer is being reviewed, the statute of limitations for collection and collection actions are suspended. The statute of limitations for collection generally restricts the time IRS has to collect delinquent taxes to 10 years from the date of assessment. The statute of limitations for collection and collection actions continues to be suspended if IRS rejects an offer through the 30-day period that a taxpayer has to make a decision on whether to appeal the rejection decision. If a taxpayer appeals, the suspensions continue through the end of the appeal process.