Offer In Compromise:
An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. Absent special circumstances, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.
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| In most cases, the IRS will not accept an OIC unless the amount offered
by the taxpayer is equal to or greater than the reasonable collection
potential (RCP).
The RCP is how the IRS measures the taxpayer’s ability
to pay and includes the value that can be realized from the taxpayer’s
assets, such as:
- real property
- automobiles
- bank accounts
- other property
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The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.
Taxpayers should beware of promoters’ claims that tax debts can be settled through the offer in compromise program for "pennies on the dollar."
This office absolutely takes advantage of an Offer in Compromise, and has in fact filed, many Offers. However, unlike many of these tax mills, we do not file an offer for the sake of an offer or to increase our revenues. You need to be extremely careful for over promising and under delivering. Many TV ads, Websites, Ads, etc., show that you may file an Offer and settle for pennies on the dollar. Although in some cases this is true, the truth of the matter is that the vast majority of offers are rejected.
The IRS has created a process for Offers that, for the most part, has been in place for many years. Generally, there are three types of Offers available:
Doubt to Collectibility:
In connection with an Offer made with Doubt to Collectibility, though
many factors come into play, the focus is generally your Income and
Assets. Doubt as to Collectibility exists when the taxpayer could not
pay the full amount of tax liability owed within the remainder of the
statutory period for collection. The Offer is generally based on what
the IRS believes it can reasonably collect.
Doubt as to Liability:
As to an Offer made with Doubt to Liability, the primary focus is generally your reasons why, under law, the tax liability is incorrect. A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include:
- the examiner made a mistake interpreting the law
- the examiner failed to consider the taxpayer’s evidence
- the taxpayer has new evidence
Effective Tax Administration:
An Offer based on Effective Tax Administration exists when there is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.
You may choose to pay your offer in one of three ways:
1. Lump Sum Cash Offer
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Payable in non-refundable installments, the offer amount must be paid
in five or fewer installments upon written notice of acceptance. A
non-refundable payment of 20 percent of the offer amount along with the
$150 application fee is due upon filing the Form 656.
If the
offer will be paid in 5 or fewer installments in 5 months or less, the
offer amount must include the realizable value of assets plus the amount
that could be collected over 48 months of payments or the time
remaining on the statute, whichever is less.
If the offer will be
paid in 5 or fewer installments in more than 5 months and within 24
months, the offer amount must include the realizable value of assets
plus the amount that could be collected over 60 months of payments, or
the time remaining on the statute, whichever is less.
If the offer
will be paid in 5 or fewer installments in more than 24 months, the
offer amount must include the realizable value of assets plus the amount
that could be collected over the time remaining on the statute.
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2. Short Term Periodic Payment Offer
Payable in non-refundable installments; the offer amount must be paid within 24 months of the date the IRS received the offer. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the offer investigation.
The offer amount must include the realizable value of assets plus the total amount the IRS could collect over 60 months of payments or the remainder of the statutory period for collection, whichever is less.
3. Deferred Periodic Payment Offer
Payable in non-refundable installments, the offer amount must be paid over the remaining statutory period for collecting the tax. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the investigation.
The offer amount must include the realizable value of assets plus the total amount the IRS could collect through monthly payments during the remaining life of the statutory period for collection.
The IRS is not bound by either the offer amount or the terms proposed by the taxpayer. The OIC investigator may negotiate a different offer amount and terms, when appropriate. The investigator may determine that the proposed offer amount is too low or the payment terms are too protracted to recommend acceptance. In this situation, the OIC investigator may advise the taxpayer as to what larger amount or different terms would likely be recommended for acceptance.
If you received a letter notifying you that your offer was rejected you have 30 days to request an appeal of the decision. You can request an Appeals conference by preparing either a Form 13711, Request for Appeal of Offer in Compromise, or a separate letter with the following information included:
- Name, address, SSN, and daytime telephone number
- A statement that you want to appeal the IRS findings to the Appeals office
- A copy of your rejected offer letter
- Tax period or years involved
- A list of the specific items you don't agree with and a statement of why you don't agree with each item
- Any additional information you want Appeals to consider
- The facts supporting your position on any issue that you do not agree with the law or authority, if any, on which you are relying
- Sign the written protest, stating this it is true under the penalties of perjury
At The Tax Law Practice, LLC, we choose to run our law practice in a professional manner. We analyze your file and give you a complete analysis along with options that may or may not work for you. We take into account the Offer in Compromise and discuss with you the strengths and weaknesses of your Offer. We provide you with an estimated fee based on our analysis before we file the necessary paperwork with the IRS.
Please feel free to contact us to discuss your case.