Offers in Compromise
EXACTLY WHAT IS AN OFFER IN COMPROMISE? (OIC, Offer)
If you owe the IRS more than you can ever pay them, you are allowed to file form 656, Offer in Compromise. In this legally binding contract, you propose to pay the IRS a certain amount in full settlement of all taxes you owe the IRS. If you qualify, IRS accepts the amount of the original or negotiated Offer, and you pay in full the accepted Offer amount; any remaining balance of tax, penalties and interest you owe, is in essence wiped off the books.Any type of tax owed to the IRS is eligible for compromise; personal, corporate or trust income tax, individual or corporate payroll tax, excise tax, estate tax and any type of penalty, including the Trust Fund Recovery Penalty, can all be compromised.
Yes, the IRS does accept settlements of less than the total you owe. IN SOME CASES!
Unlike most of the national tax resolution companies advertising that the IRS will accept “Pennies on the Dollar” from anyone who calls them, we do not promise each potential client we can settle with the IRS. This option is available on a very limited basis. In the 2010 fiscal year, IRS accepted only 14,000 OICs out of 17.5 million delinquent taxpayers. That is .0008 of 1% taxpayers who qualify for an Offer in Compromise. The reason for the low acceptance rate by the IRS on submitted Offers is two fold. Taxpayers who submit their own Offer and representatives who submit Offers on behalf of their clients do not have the knowledge and experience to deal with the issues involved in an Offer. Correct procedures for submission, prior planning for the Offer before submission, IRS allowances and deviations from the allowances, state law, federal law, and IRS employees’ personalities all play an equally important part in a successful Offer in Compromise.
There are two main categories for filing an OIC, doubt as to collectability and doubt as to liability. Doubt as to collectability means the IRS does not think it can collect the entire liability within the statue of limitations. Doubt as to liability means there is some doubt that you actually owe all or part of the liability.
We do check each client’s potential for qualifying for an Offer. If the client qualifies, can pay the 20% down as required by the IRS AND can pay the IRS the amount we estimate would be an acceptable Offer, then we submit and work the Offer for the client. We represent the client in each stage of the Offer process. Our representation of a client includes planning, preparation, submission, and negotiations with the Offer Specialists and through Appeals if required. We have a 91% success rate for submitted Offers.
There are two main areas the IRS considers when reviewing an OIC based on doubt as to collectability:
- Equity in assets.
- Future income collection potential.
For instance, if you owe the IRS $20,000 and have $100,000 equity in real estate, you would not qualify for an Offer. You would be able to pay the entire $20,000 from the equity.
Future income collection potential in short means, the monthly payment you could pay the IRS over a period of time. This amount is determined by subtracting the amount of your allowed monthly personal living expenses from your monthly household income. Using the $20,000 balance above, if your income is $3,000 and your allowed living expenses are $2,500, you would not qualify for an Offer if there were more than 40 months left in the collection statue because the IRS could collect the total owed on an Installment Agreement. If you had no equity in assets and your income was $2,600, you would qualify for an Offer of approximately $5,000.
An Offer in Compromise is a very time consuming and difficult task for even the most experienced representative. A complete and comprehensive financial statement must be submitted to the IRS. Our Associates are experts in preparing financial statements required by the IRS. One mistake could cost you thousands of dollars or render your Offer unacceptable by the IRS. The representative must have extensive knowledge of tax law, state law and accounting principals but also the internal workings of the IRS. The procedures for Offers in Compromise are constantly changing. What the IRS will and will not allow this week, may change next week. You should never submit an Offer on your own.
There are many pitfalls and down sides of an Offer in Compromise that must be considered. Too many in fact, to be covered here. Make sure you are fully aware of what submission of an OIC will mean to your particular situation. Our Associates can advise you on this. But more importantly, make sure your representative knows.
At TSI, we never arbitrarily submit an OIC just because a client says they want to do an Offer. We must first look at a client’s financial position and in most cases, recommend changes to the client’s finances that will increase the chances of a successful OIC.
We have on Staff, former IRS Offer in Compromise Specialists with experience working the most complicated Offers in Compromise.
Prior Planning is Essential Before Submission of A Successful Offer in Compromise!
