legal advice

I am often asked by my potential clients whether they will qualify for an offer in compromise. They hear advertisements on television and the radio about settling their tax debt for "pennies on the dollar." While it may be possible for some people to settle their tax liabilities for pennies on the dollar, that is not the case for every taxpayer.
There are three types of offers within the offer in compromise program at the Internal Revenue Service. Some deal with doubt as to liability, but more commonly liability is not questioned and the offer is submitted based on doubt as to collectability - meaning the taxpayer does not have the ability to currently pay the tax due.
When there is no question as to liability, and you file an offer in compromise based upon doubt as to collectability the offer in compromise amount is based upon your income, your monthly expenses (based on what the IRS will allow), and the available equity you have access to in your assets. Many times, the question of whether someone will qualify for an offer in compromise that will substantially reduce the amount of taxes owed depends on the amounts and types of expenses you have each month and the type of assets you own. The expenses that you have may not all be allowed by the IRS and that is one of the things that impede many taxpayers from getting their offers accepted.
The IRS bases the allowable expenses on national standards that were derived from national census data. What that means is that even though you have a contractual relationship with the bank, the IRS will only allow $1,000 per month (for example). Along the same line, the IRS will only allow you a certain amount for operating your car each month which is definitely not enough in today's life when gas costs $3 per gallon. Even though these standards are clearly out of date, it is the law today - so that is what we have to work with. With many of these expenses, you will have defend the amounts you spend to the IRS and you and your attorney will most likely be bound by the national standards. The fate of your offer in compromise will most likely be determined by how these allowable expenses are determined and deducted from your income.