An offer in compromise is a method to "settle" tax liabilities for pennies on the dollar. The offer in compromise program is for (a) taxpayers that cannot afford to pay their tax liability due to financial hardship where the government is unable to collect the full amount due through enforced collection activity, and (b) taxpayers that claim they do not owe the tax the government says is owed. Many types of tax liabilities can be settled through an offer - including personal income taxes, corporate income taxes, payroll taxes, and even estate taxes. Many types of taxpayers can file an offer in compromise - including individuals, corporations, partnerships, estates, and trusts. The Internal Revenue Service, Franchise Tax Board, and Employment Development Department all have offer in compromise programs. They are are contracts, involve considerable negotiation skills, and include requirements for future conduct (i.e. that taxpayers comply with all tax laws, usually five years after the date of acceptance). See the federal link below for the federal Form 656 - on the back of this form are the terms of the "contract".

Although any taxpayer can represent them self, almost always it is a huge mistake to do so. This is true because the I.R.S., F.T.B, or E.D.D. will take advantage of a taxpayer that does not know the rules of law, rules of procedure, and taxing agency rules as stated in its policy manuals. In other words, the government usually abuses taxpayers that represent themselves by (a) using fear and threats, often illegally, to get what they want [more money!], (b) operating outside the law and outside policy, and (c) collecting significantly more that would have been collected had the taxpayer had competent representation. I am an expert in preparing, filing, and prosecuting offers in compromise and have a high success rate.

To pursue an offer in compromise, a taxpayer must fully disclose its financial condition. Each taxing agency has its own financial condition form (links to these forms are provided below). The forms must be accurately completed, as each taxing agency will thoroughly investigate them. It is a criminal offense to intentionally falsify financial condition statements - so be sure they are filled out accurately.

How much must a taxpayer offer? For federal offers in compromise, the minimum offer amount is a taxpayer's net equity in assets. Here is the basic formula (also see the link below to federal form 656 - Offer In Compromise, for detailed calculation instructions):

Total Fair Market Value Of All Assets

Less:

(A1) A 20% Discount Of Total FMV Of All Assets [no discount for bank balances, retirement accounts that you can cash out of, and securities];

(A2) Secured Or Priority Debts On Assets[i.e. car loans, home mortgages, personal property loans];

(A3) $6,250 of your furniture and personal household items; and

(A4) $3,125 of your trade or business tools.

Plus:

(B1) the total of your monthly income less the total of your monthly expenses times one of the following factors:

* if less than five years remain for the time period the IRS can legally collect your tax liability [generally 10 years from the filing date of your income tax return], multiply (B1) times the remaining number of months that the IRS can legally collect your tax liability.

*if you can pay your offer in cash or check, and more than five years remain for the time period the IRS can legally collect your ax liability, multiply (B1) times 48.

* if you can only pay your offer amount over up two years, and more than five years remain for the time period the IRS can legally collect your tax liability, multiply (B1) times 60.

Again, taxpayers almost always pay less if they hire a competent representative to handle their offer in compromise.

Links for forms in PDF:

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Federal I.R.S. Forms
Collection Statement for Individuals
Collection Statement for Businesses
Offer In Compromise

California Franchise Tax Forms:
Offer In Compromise Package

California Employment Development Forms
You have to order them. Here is a link where you can order the forms needed.
EDD Order DE 631C, DE999A, DE999B, and DE999C