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Why the IRS will sometimes accept less than full payment
I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS. 
 
The IRS has more collection powers than any private debt collector in the US system. They can for example seize IRA and 401K accounts. These are off-limits to any other creditor. Given these powers, why would they let anybody off the hook?
 
The answer is that a lot of times it just makes sense. The IRS reasons for accepting an Offer-in-Compromise boil down to three categories:
Doubt as to Liability – this applies to taxpayers that have good arguments that they do not owe the tax either partially or completely. Doubt as to Collectability – taxpayers in these cases have nether the income or the assets to pay their tax debt. Effective Tax Administration – this involves cases where the taxpayer has the funds to pay the full debt but doing so will create an economic hardship. Think of the 80-year-old with a lumpsum payout from their retirement plan that is needed to pay their living costs for the balance of their life. Wow - sounds very reasonable. Why then is it that most Offers are rejected by the IRS? The answer to this boils down to two major categories:
The ... more

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