Answers to Offer in Compromise Questions – Former IRS Settlement Agent

by Fresh Start Tax | Dec 6, 2013 | Offer in Compromise

I am a former IRS agent who worked and taught the offer in compromise program while I was at Internal Revenue Service.
I worked both out of the local office and the regional training center.
The best way for taxpayers to settle their cases is through the offer in compromise but before we get started you should know that not everybody is an offer in compromise candidate.
There are very strict qualifications and I would recommend that nobody give their money to an Internet firm or professional tax company unless they know they are a pre-qualified and a suitable candidate to file for an offer in compromise.
You can go directly to our website and search for the pre-qualifier tool for the offer in compromise.
You can find out for yourself whether you are a qualified candidate or you can call us today for free initial tax consultation and we can tell you within minutes whether you should proceed with the filing of an offer in compromise.
About three years ago the Internal Revenue Service got very serious about offers in compromise, prior to that they were almost impossible to get to the system.
Today IRS accepts about 38% of all offers in compromise filed.
Last year 58,000 offers in compromise were filed and the average settlement was $.14 on a dollar.
Once again, before you file for offer in compromise make sure you’re a qualified candidate to do so.
What is IRS Looking for to Settle?
When IRS is looking to settle a case they are basically looking at two things;
1. assets,
2. income
The Internal Revenue Service has specific standards of acceptance and the only two things that are interested in is available and income in liquidity and assets.
IRS is basically  want to know the liquidation value of all your assets and they want to know what disposable monthly income that you have. There is a formula were they combine income and assets and come up with a base figure.
In general, the Internal Revenue Service will add up your assets, multiply your available monthly income times 12 and ask you for that as a settlement. Of course there are some exceptions and those you should speak directly to us about.
Overview of the FAQ’s
1. What is the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA)?
The Tax Increase Prevention and Reconciliation Act of 2005 was signed into law on May 17, 2006. Section 509 of this law creates significant changes to the IRS Offer in Compromise (OIC) program by amending IRC 7122.
2. When did the TIPRA law go into effect?
The law went into effect for all offers that are submitted to the IRS on or after July 16, 2006.
3. How did TIPRA, Section 509, impact the OIC program?
TIPRA, Section 509, amends IRC 7122 by creating a new subsection (c), titled “Rules for Submission of Offers in Compromise.” The new subsection (c) requires that offers submitted on or after July 16, 2006, (and not subject to the waiver with respect to low-income taxpayers or offers filed under doubt as to liability only) must be accompanied by partial payments of the proposed offer amount.
The form of these partial payments depends on the taxpayer’s proposed offer and terms of payment.
The law also establishes a time period after which an offer would be deemed accepted by the IRS.
4. What are the proposed offer terms that became effective as of July 16, 2006?
Taxpayers filing offers (excluding doubt as to liability offers) will have to specify whether they are filing a lump sum or “periodic payment” offer.
The new IRC 7122(c)(1)(A) subsection requires that a taxpayer filing a lump sum offer must pay 20 percent of the offer amount with the application. A lump sum offer means any offer of payments made in five or fewer installments.
The new IRC 7122(c)(1)(B) subsection requires that a taxpayer filing a periodic payment offer pay the first proposed installment payment with the offer application and pay additional installments while the IRS is evaluating the offer.
A periodic payment offer means any offer of payments made in six or more installments.
5. What time period has been established by TIPRA in relation to declaring offers accepted?
IRC 7122(f), as amended by the TIPRA legislation, will cause the IRS to deem an offer “accepted” if it is not withdrawn, returned or rejected within 24 months after the IRS receipt date.
If a liability included in the offer amount is disputed in any judicial proceeding, that time period is omitted from calculating the 24-month time frame.
6. Are all taxpayers required to pay the payments imposed by TIPRA in order for the IRS to evaluate their offer in compromise?
No. Taxpayers qualifying as low-income or filing a doubt as to liability offer are not required to pay the $150 application fee, the 20 percent payment on a lump sum offer, or the initial partial payments on a periodic short term or deferred payment offer.
7. What is a low-income taxpayer?
For offer purposes, and as redefined with the release of Form 656 (Revision February 2007), a low income taxpayer is an individual whose income is 250 percent of the 2006 HHS Poverty Guidelines.
These new standards are incorporated into the IRS OIC Monthly Low Income Guidelines that went into effect with the release of Form 656 (Revision February 2007).
8. What does a taxpayer need to submit in order to claim to qualify as a low-income taxpayer who is not be required to pay the payments imposed by TIPRA?
As is the case when claiming exemption from payment of the $150 application fee, the taxpayer will need to complete the OIC Application Fee and Payment Worksheet and Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment. Both the worksheet and Form 656-A must be submitted with the Form 656 application.
9. Does a taxpayer need to submit two Form 656-A forms to claim exemption from the application fee and the TIPRA payments?
No, only one Form 656-A will be required and it will apply to both the application fee and the required TIPRA payments.
10. What happens if the taxpayer submits a Form 656-A claiming to qualify as low-income and the IRS later determines that the taxpayer did not qualify?
If the OIC investigator determines that the taxpayer’s income for the family size exceeds the levels for which a Form 656-A certification is allowed (e.g. the taxpayer should have paid the application fee and the partial offer payments), the offer investigation will immediately cease and the offer will be returned to the taxpayer.
The taxpayer will not have appeal rights to this decision.
11. What happens if the taxpayer, who is not filing a doubt as to liability offer, does not submit the payment imposed by TIPRA and does not qualify as low-income?
Failure to pay the 20 percent payment on a lump sum offer or the first installment payment on a periodic payment offer will cause the IRS to return the offer back to the taxpayer as not processable.
12. Has the impact of TIPRA caused the IRS to change its processability criteria for offer submissions?
Yes. As a result of TIPRA, offers will be deemed not processable and will be returned to the taxpayer along with the $150 application fee in the following situations:
Taxpayer is a debtor in an open bankruptcy proceeding
Taxpayer does not submit the $150 application fee or a signed Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment
Taxpayer does not submit the 20 percent payment with the lump sum offer, or a signed Form 656-A
Taxpayer does not submit the initial payment with the periodic payment offer or a signed Form 656-A
13. What happens if a taxpayer only submits the $150 application fee with the offer?
If a taxpayer submits only the application fee and does not submit either the 20 percent payment or the first installment payment, the offer will be deemed not processable and the $150 application fee will be returned to the taxpayer.
15. Is compliance no longer a processability criterion for OIC submissions?
Correct. Compliance is not considered to be a processability criterion for OIC initial submissions. If compliance is the only issue, the offer will be deemed processable. However, IRS will contact the taxpayer by either telephone or correspondence requesting the delinquent return(s), federal tax deposits or required estimated tax payment(s).
A reasonable amount of time will be provided to the taxpayer to comply. Failure to comply will cause the IRS to return the offer to the taxpayer and retain the application fee, along with all TIPRA payments previously paid. The taxpayer will not have appeal rights to this decision.
16. Does the taxpayer need to submit two separate remittance documents when filing an offer (e.g., one for the application fee and another for the required payments)?
Yes. The taxpayer should remit two checks, one for the application fee and the other one for the required TIPRA payment.
If only one check is received, the IRS will apply the application fee first and then the remainder as the payment amount.
17. Are the payments imposed by TIPRA refundable to the taxpayer if the IRS later returns the offer back to the taxpayer?
No, the TIPRA payments are not refundable. Based on IRC 7122(c), the 20 percent payment on a lump sum offer and the periodic payments on a short term or deferred payment offer are considered “payments on tax” and are not refundable.
18. Does TIPRA allow the taxpayer to designate how these payments should be applied?
Yes. Taxpayers are not required to but may designate the application of the TIPRA payments. The designation must be made in writing when the offer is submitted or when the required payment is made
19. What happens if the taxpayer does not submit a written request stating how the payments should be applied?
In the absence of any written request by the taxpayer when the offer is submitted or when the required payment is made, the IRS will apply the partial payment(s) in the best interest of the government.
20. Can a taxpayer designate how the $150 application fee is applied?
No. A taxpayer may not designate how the application fee is applied. The OIC application fee reduces the assessed tax or other amounts due.
21. What happens if a taxpayer who has paid the initial payment on a periodic payment offer fails to submit subsequent payments while the offer is under investigation?
The IRS will contact the taxpayer and provide one opportunity to pay the missing amount. The offer will be declared withdrawn and returned back to the taxpayer if the taxpayer fails to submit the required amount.
All payment(s) previously made will be applied to the taxpayer’s account. The IRS will retain the application fee and the taxpayer will not have appeal rights to this decision.
22. Is the IRS bound by the offer amount and terms submitted by the taxpayer in determining an acceptable offer?
No. The IRS is not bound by either the offer amount or the terms. 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 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.
23. What will happen to payments the taxpayer makes during the offer investigation if the IRS later rejects the offer?
The IRS will credit the taxpayer’s account(s) with any payment(s) submitted with the original offer, as well as any payments that were made during the course of the offer investigation.
24. Will a taxpayer be able to designate any partial payments in excess of the 20 percent paid with a lump sum offer, or in excess of the proposed installments paid under a periodic payment offer?
Yes, if the taxpayer submits the request in writing.
All payments will be treated as payments of tax including any overpayment, and applied to the Government’s best interest unless designated by the taxpayer.
If the taxpayer requests the overpayment be considered a deposit, the overpayment cannot be designated, but may be refunded if the offer is rejected or returned by the IRS or is withdrawn by the taxpayer.
The IRS will not pay interest on the deposit.
25. How many offers in compromise am I allowed to file?
you can file as many offers in compromise if you wish there are no limitations. If one is rejected you can go ahead correct your mistakes and file another offer in compromise.
26. If my offer in compromise is rejected is there an appeal process?
If your offer in compromise is rejected there is an appeal form that will be sent out to you with your notice of rejection. Simply file that within the timeframe and your case will go to an appellate agent to hear your appeal.
27.  How long does it take an offer in compromise to be determined?
To date, there are 7500 offering compromises in the IRS Queue. and offering compromise right now is taking anywhere between six months in a year to be settled due to a lack of manpower.
 
Remember the offer in compromise is not for everybody.
It is always best to speak to a qualified professional before you spend any money on the filing of an offer in compromise.
You can call us today for a free initial tax consultation and we can walk you through the process and see if he should go forward and proceed.
 


 
Answers to Offer in Compromise Questions – Former IRS Settlement Agent