How does doubt affect the application for an offer in compromise?

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Carl S. Goode |

Offer in compromise is a program instituted by the Internal Revenue Service (IRS). It aims to help taxpayers who cannot pay the taxes they owe, or for taxpayers for whom it would create a financial hardship to pay the taxes they owe. It allows taxpayers to settle their tax bill for less than the full amount owed.

However, not everyone may be eligible for an offer in compromise. There is a process for determining eligibility. Also, there are several reasons for an application to be rejected or returned. In Louisiana, one of these reasons may be because the offer shows doubt as to collectability and/or liability.

Diving into financial constraints

Doubt as to collectability arises when the tax authorities doubt your ability to pay the full amount of your tax debt. In simpler terms, it means that you may not have the financial resources to cover your tax liability entirely. When you submit an offer in compromise under this category, you are essentially proposing to pay a reduced amount that you can afford, and the tax department evaluates your offer based on your financial situation.

Questioning tax obligation

On the other hand, “doubt as to liability” deals with disputes over the actual tax liability itself. This can happen when you believe that you do not owe the full amount or any amount of taxes that the department claims you do. It might involve issues related to tax calculations, exemptions or other factors that impact your tax liability.

Facing a return of your offer

If the Louisiana Department of Revenue (LDR) returns your application for an offer in compromise, you will receive a notification from them through mail. Since there is no provision in Louisiana law for appeal of a declined offer, you may need to pay for the entire liability. Make sure to reach out to the department once you receive the mail. If, for any reason, you are unable to pay the amount in full, you may check with them if an installment payment option is possible.

To avoid denial due to doubt as to collectability and/or liability, request due to reasons, it is crucial to submit evidence that demonstrates your financial hardship (for collectability) or that challenges the tax assessment (for liability) right at the beginning of your application. Carefully consider your specific circumstances to improve your chances of a successful offer in compromise.

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