A determination must be made by the IRS on how to monitor the taxpayer that owes monies to the IRS on back taxes during the time the offer in compromise is given to the IRS. The following is the treatment of those cases:
During the time an accepted offer is monitored, a determination must be made to terminate or rescind an existing offer in compromise agreement. A determination by the IRS agent as to whether to compromise an existing accepted offer may also be considered. This chapter addresses the situations which lead to the need for such decisions to be made and the procedures to follow.The IRS agent usually has complete control of what the next steps will be. You should ask the agent, ” where does this case go from here?”
Rescission’s of Accepted Offers in Compromise
An offer in compromise is an agreement which is binding on both the government and the taxpayer, or corporation, and precludes further inquiry into the matters to which it relates, unless fraud or a mutual mistake of fact is identified.
An offer in compromise may be rescinded or set aside when there was a mutual mistake as it relates to a material fact or a false representation that was made by one party. That party is usually the taxpayer.
A “mutual mistake of fact” is defined as an erroneous belief held by both parties about the facts as they existed at the time the contract was entered into.
The mere fact that both parties, the IRS and the individual were mistaken with respect to the same basic belief about an existing fact does not, of itself, provide reason for the affected party to void the contract. Rescission is only appropriate where a mistake of both parties has such a material affect on the agreed exchange of performance that it upsets the very basis of the offer in compromise.
To constitute fraud or false representation, the following must be present:
The representations related to material facts were false.
The maker knew the facts to be false.
The facts were made for the purpose of inducing, and did induce the other party to make the contract, and that the latter had the right to rely on them, and did rely on them, thereby sustaining injury.
4. It should be be known that these instances are rare and in-between.
5. The possibility of a referral to CID or Criminal Investigation could transpire.
Potential Default Case based on the inability of the taxpayer to preform
An offer in compromise can reach a potential default status in one of these ways:
The taxpayer failed to make timely payment of the amount due based on the terms of the offer or a related collateral agreement that is failed to make a monthly tax payment or did not remain current in the tax year the taxpayer is in.
The taxpayer has not adhered to the compliance provisions of the offer
The Taxpayer failed to return an erroneously issued refund.
4. The taxpayer did not answer documentation set by the IRS
Compromise of the original Offer in Compromise
The compromise of an original “Offer in Compromise” should be rare ( but do happen ) in light of the IRS’ current investigation completed in connection with the original offer in compromise. However, in cases where the taxpayer or entity is unable to pay the balance of an accepted offer in compromise or the balance of the liability under the terms of a collateral agreement and the Internal Revenue Service investigation reveals that “extreme hardship” or special circumstances exist, which would justify that a default is not in the best interest of the government. (See our other writing on website under “current hardships”) IRS has the option to:
Adjust the payment terms of the offer in compromise, doubt as to collect ability
Formally compromise the existing offer in compromise
How the process works : The consideration of Process
The consideration of such a proposal of the Offer in Compromise doubt as to collect-ability will be made by the office of jurisdiction that originally accepted the offer. Most of the cases are worked out of the New York office. Some local office are staffed with Offer personnel as of the writing of this document. Acceptance will depend on various factors such as:
Is this in the best interest of the United States Government?
Understand that all Offers in compromise are open for public inspection. Does this offer serve the mission of the IRS and Federal Government as a whole?
The information required to support the proposal should fit the case. Examples are the following:
Copy of the taxpayer’s most recent income tax return
Estimate of the remaining liability under the terms of the future income collateral agreement
Reasons why the request is being made to compromise the existing agreement. A full written explanation along with documentation is usually required. The IRS will not just accept a verbal explanation.
Full compliance check of all current estimated payments or current tax deposits or even a pay stub reflecting withholding sufficient to pay the tax in full for the current tax year.
Statement of current financial condition. IRS may require a new financial statement or 433A
Description of future prospects and any other information which might have a bearing upon the acceptability of the offer. IRS will explore all future avenues
Estimated and projected amount of future income over the period covered by the remaining terms of the original offer in compromise agreement.
Compare the amount of the taxpayer’s offer and the amount which is anticipated to be recouped under the remaining terms of the original offer agreement.
What is the usual outcome
When the IRS is confronted with a well documented case and file, the IRS is usually very reasonable and will try to make the situation work to the best interests of all involved. With the condition of the current economy we are finding this trend of changing the original offer to be a current trend. It is very wise to have a good solid tax professional as your guide and counsel through this process.
How long does this process
While each case is different, a number of factors needs to be considered:
* Has the case been completely documented
* Who is the IRS Agent working the case
* Is the case being worked out of the local office
* Is this all done by mail correspondence
* Is this case being worked during the holidays are possible summer seasons
On average, Offers in Compromises take between 3-5 months
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