Offer in Compromise for Effective Tax Administration
There are several different types of offers in compromise: doubt as to collectability (what we usually talk about and the most common type of offer in compromise which states that you simply do not have the money to be able to full pay your tax debt), doubt as to liability (where you believe you are not liable for the tax the IRS is trying to assess against you) and for effective tax administration. This offer in compromise based on effective tax administration comes into play when you know you owe the tax liability and you go through the financial information like in the offer based on doubt as to collectability and it appears you can full pay your tax liability. But, even though your financial declaration shows that you have assets and/or sufficient income to full pay your tax liability it would cause you an economic hardship.
So what does this mean exactly? Well, a common example would be a person who is advanced in age and has some severe medical problems that prevent him from working and earning an income beyond Social Security. While his home is paid for and he has a retirement account that if sold and cashed in, respectively, could pay for the tax liability he owes. However, if he cashes in his retirement account and sells his home he will be 100% relying on the federal and state governments to provide for ALL of his needs including shelter, healthcare, food, medication, medical care, and on and on. When you boil it down, this type of offer in compromise requires you to show the IRS why requiring you to full pay your tax liability would have such a negative impact on you.