When you’re in tax debt, it can be difficult to know where to start. At Highland Tax Group, we’re here to help you select an IRS relief option that makes sense for you. You may have heard of a few of these options.
One of the most common is an Offer in Compromise (OIC), a standardized IRS program that allows a taxpayer to settle a tax debt for less than the full amount owed. While most taxpayers are familiar with the common version of this program based on an inability to pay, there is a distinct and more complex category known as Effective Tax Administration (ETA) that may be a better option.
What is an ETA OIC, and How Do I Qualify?
An ETA OIC applies specifically to taxpayers who could technically pay their full tax liability through assets or income, but for whom the IRS determines that collecting the full amount would be fundamentally unfair.
To qualify for an ETA OIC, a taxpayer must demonstrate exceptional circumstances. This usually falls into two categories:
- Economic hardship: where full payment would leave the taxpayer unable to meet basic living expenses; or
- Public policy and equity: where unique factors make full collection a detriment to the fairness of the tax system.
Defining Economic Hardship in ETA Cases
Economic hardship includes situations where a taxpayer has sufficient equity in a home to pay the debt, but a chronic illness or long-term disability requires that equity to fund future medical care or specialized living arrangements. Hardship is established if the IRS determines that liquidating an asset or committing to an installment agreement would deprive the taxpayer of the means to sustain basic health and welfare.
Establishing Public Policy and Equity
The Public Policy and Equity category is reserved for cases in which no economic hardship exists, but exceptional circumstances would make full collection inequitable. For example, cases where a taxpayer was unable to comply with tax laws due to a natural disaster, a long-term coma, or cases where the IRS provided erroneous written advice.
Under these guidelines, the taxpayer must demonstrate that they acted in good faith and that, despite the ability to pay, holding them to the full liability would undermine the public’s confidence in the fair and equitable administration of tax laws.
Review Your Options with Highland Tax Group
Navigating the choice between these programs, like most things with the IRS, isn’t that simple. At Highland Tax Group, we’re here to explain your tax debt resolution options to ensure you select a path that aligns with your financial reality.