Tax Defense ✦ Settlement
Settle Tax Debt for Less. When the Numbers Support It.
An offer in compromise is the IRS agreeing to accept less than you owe because that is all it can realistically collect. It is a formula, not a negotiation, and the formula is computed from a financial statement. North Star Law Firm prepares that statement as a CPA, argues the offer as a lawyer, and tells you up front whether an offer is likely to work or whether another resolution serves you better.
Overview
How an offer works
The IRS accepts an offer in compromise under I.R.C. § 7122 when the amount offered equals or exceeds its calculation of reasonable collection potential, or when there is doubt as to liability or a compelling equity argument. The calculation adds the net realizable equity in your assets to 12 or 24 months of disposable income (depending on payment terms), using the IRS’s national and local expense standards for Colorado. We run that calculation before an offer is filed so you know the number and the odds. If the number is too high to be worth it, we say so and pursue a partial-payment installment agreement or currently-not-collectible status instead.
- Reasonable collection potential computed before filing
- Forms 433-A (OIC) and 656 prepared by a CPA
- Colorado expense standards applied correctly
- Doubt-as-to-liability and effective tax administration offers where they fit
- Appeal of a rejected offer to the Independent Office of Appeals
- Five-year compliance plan built into the engagement
- Colorado Department of Revenue offer filed after the federal result
- Comparison against installment and CNC options, in writing
IRS vs. Colorado
Two programs, two sets of rules
| IRS offer in compromise | Colorado DOR offer in compromise | |
|---|---|---|
| Standard | Reasonable collection potential (assets plus future income), doubt as to liability, or effective tax administration | Maximum capacity to pay, verified against IRS information and a credit report |
| Collection while pending | Suspended | Continues |
| Repeat offers | Allowed | One-time opportunity; later requests denied |
| Prior relief | Not disqualifying | Disqualifying if you previously had a Colorado liability discharged in bankruptcy, written off, settled, or relieved as an innocent spouse |
| Compliance after acceptance | Five years of timely filing and payment | All returns filed through the current period before the offer; terms set in the acceptance |
The Attorney-CPA Difference
An offer is accepted or rejected on the 433. We write the 433.
The offer form is a few pages. The financial statement behind it is the case. Asset valuations, the treatment of retirement accounts and business equity, dissipated-asset issues, and the expense standards for the county you live in each move the number, and the IRS offer examiner will challenge every one of them. We prepare the statement the way a CPA prepares a financial statement and defend it the way a lawyer defends a case, and we keep the Colorado offer in mind so the two settlements don’t undercut each other.
- Asset and income schedules prepared to IRS Manual standards
- Offer amount modeled before anything is filed
- Business-owner offers with entity valuation handled in-house
- Rejections appealed with a revised computation
- Colorado offer sequenced after the federal acceptance
Questions & Answers
Offer in Compromise questions, answered
How does the IRS decide what to accept?
By computing your reasonable collection potential: the equity in your assets plus a multiple of your monthly disposable income, measured against the IRS’s own living-expense standards for your county. If that figure is less than the balance, an offer at that figure is acceptable in principle. The figure is an accounting result, and small differences in how the financial statement is prepared move it by thousands of dollars.
Does Colorado accept offers in compromise?
Yes, under its own program with stricter rules. The Department of Revenue requires all returns filed, treats an accepted offer as a one-time opportunity that will not be repeated, continues collection while the offer is under review, and will not consider an offer from a taxpayer who previously received relief such as a bankruptcy discharge or innocent spouse relief on a Colorado liability. Colorado’s offer is usually filed after the federal one is resolved so the state can see the IRS outcome.
How long does an IRS offer take?
Six to twelve months is typical, and collection is suspended while the offer is pending. The statute of limitations on collection is paused during that time too, which is one reason an offer that is unlikely to be accepted can be a bad idea.
What happens after an offer is accepted?
You must stay in compliance for five years: file every return on time and pay every balance when due. A missed return or a new balance defaults the offer and reinstates the original debt. We build the compliance plan into the engagement, including estimated payments for the self-employed.
What if I own a home with equity?
Home equity counts toward the offer amount, at 80 percent of fair market value less the mortgage. Colorado’s homestead exemption protects your house from a forced sale in some contexts, but it does not reduce the equity the IRS counts in an offer. Often the answer is a partial-payment installment agreement instead, which we compare in the analysis.
Talk to an attorney-CPA before you talk to the IRS.
A free consultation, a plain-English assessment, and a flat fee in writing if you decide to move forward.