I am often asked whether there is a way for a taxpayer to be accepted for an offer in compromise when there appears to be enough income to make payments to the IRS. When you peel the layers back, a lot of times you see there are valid reasons for the IRS to grant an offer in compromise that do not fall into the two most common offer formats: doubt as to collectibility and doubt as to liability.

Congress has established an alternative to the traditional offers based on doubt as to collectibility and doubt as to liability when an offer should be based on effective tax administration. The IRS is authorized to accept an offer in compromise based on effective tax administration when the collection of the full liability would create a hardship, exceptional circumstances exist that the collection of the full liability would be detrimental to voluntary compliance by taxpayers, and compromise of the liability would not undermine compliance by other taxpayers.

The IRS considers several factors in determining whether to accept an offer on this basis. All of the factors are weighed, but none are conclusive for acceptance or denial of the offer. Some of the factors include: the taxpayer's inability to work due to disability, liquidation of taxpayer's assets would prevent the taxpayer from being able to meet basic living expenses, or the sale of assets would have adverse consequences and more than likely, the collection activity would be unlikely. It is also helpful when the taxpayer can show that you have never had a problem filing and paying your taxes in the past, you have not deliberately tried to avoid paying these taxes, and you have not encouraged others not to file their taxes. This offer in compromise based on effective tax administration will allow some taxpayers with exceptional hardships the opportunity to have their tax liabilities reduced even though they technically can pay the full balance. However, the taxpayer should keep in mind that the IRS often has a difficult time looking past the technical aspects of each case.