by Fresh Start Tax | Jul 16, 2013 | Tax Help
We are a local South Florida tax firm that specializes in back tax debt solutions with both the state of Florida and the Internal Revenue Service.
We are an A+ rated professional tax firm located right here in your own home community of South Florida.
We have been located right here in South Florida since 1982.
We are comprised of tax attorneys, certified public accountants, and former IRS agents and managers who have a combined 60 years of direct work experience in the local South Florida IRS offices.
Besides the offer in compromise program there are other back tax debt solutions that IRS has to offer, it all depends on your individual case and your individual financial statement.
Your current financial statement will hold the key to which back tax debt solution you are eligible for.
As former IRS agents, we know every tax protocol and every back tax debt solution that is offered by both the federal and state governments.
You may be eligible for an economic tax hardship called currently not collectible, you may be eligible for a payment or installment agreement or you may be eligible for the ultimate back tax debt solutions called the offer in compromise.
The only way to determine what the best tax debt solution will be on your individual case is to contact us for free initial consultation and be prepared to give us your current financial statement.
You will need to fill out a form 433F which is the IRS version of a financial statement. You can find that form on our website. Once we review that we can go over all the back tax debt solutions and help permanently and immediately remedy your IRS back tax problem.
There are many good tax firms that specialize in back tax debt solutions nationwide and we believe we are one of the finest firms because of our expertise and experience in IRS tax settlements.
While at the Internal Revenue Service we taught the offer in compromise program, tax settlements, to new IRS agents.
Back Debt Solutions called the 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.
If the liabilities can be fully paid through an installment agreement or other means, the taxpayer will in most cases not be eligible for an OIC.
In order to be eligible for an OIC, the taxpayer must have:
- filed all tax returns,
- made all required estimated tax payments for the current year, and
- made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.
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 .
The RCP is how the IRS measures the taxpayer’s ability to pay.
The RCP includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. In addition to property, the RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.
The IRS may accept an OIC based on three grounds.
- First, acceptance is permitted if there is doubt as to liability. This ground is only met when genuine doubt exists under applicable law that the IRS has correctly determined the amount owed.
- Second, acceptance is permitted if there is doubt that the amount owed is fully collectible. This means that doubt as to collectibility exists in any case where the taxpayer’s assets and income are less than the full amount of the tax liability.
- Third, acceptance is permitted based on effective tax administration. An offer may be accepted based on effective tax administration when there is no doubt that the tax is legally owed and that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.
When submitting an OIC based on doubt as to collectibility or based on effective tax administration taxpayers must use the most current version of all Forms. Those forms are:
Those required forms are:
- 656 (PDF), Offer in Compromise, and also submit
- Form 433-A (OIC) (PDF), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or
- Form 433-B (OIC) (PDF), Collection Information Statement for Businesses.
- A taxpayer submitting an OIC based on doubt as to liability must file a Form 656-L (PDF), Offer in Compromise (Doubt as to Liability), instead of Form 656 and Form 433-A (OIC) and/or Form 433-B (OIC).
Required Application Fees
In general, a taxpayer must submit a $150 application fee with the Form 656. Do not combine this fee with any other tax payments.
There are, however, two exceptions to this requirement.
No application fee is required if the OIC is based on doubt as to liability.
The fee is not required if the taxpayer is an individual (not a corporation, partnership, or other entity) who qualifies for the low-income exception.
This exception applies if the taxpayer’s total monthly income falls at or below 250 percent of the poverty guidelines published by the Department of Health and Human Services. Section 4 of Form 656 contains the Low Income Certification guidelines to assist taxpayers in determining whether they qualify for the low-income exception.
A taxpayer who claims the low-income exception must complete section 4 of Form 656.
Taxpayers may choose to pay the offer amount in a lump sum or in installment payments.
A Lump Sum Offer
A “lump sum offer” is defined as an offer payable in 5 or fewer installments and within 24 months after the offer is accepted.
If a taxpayer submits a lump sum offer, the taxpayer must include with the Form 656 a nonrefundable payment equal to 20 percent of the offer amount. This payment is required in addition to the $150 application fee.
The 20 percent amount is called “nonrefundable” because it cannot be returned to the taxpayer even if the offer is rejected or returned to the taxpayer without acceptance. The 20 percent amount will be applied to the taxpayer’s tax liability.
The taxpayer has a right to specify the particular tax liability to which the IRS will apply the 20 percent amount.
Periodic payment offer
The offer is called a “periodic payment offer” under the tax law if it is payable in 6 or more monthly installments and within 24 months after the offer is accepted.
When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment along with the Form 656.
This payment is required in addition to the $150 application fee. This amount is nonrefundable, just like the 20 percent payment required for a lump sum offer.
Also, while the IRS is evaluating a periodic payment offer, the taxpayer must continue to make the installment payments provided for under the terms of the offer. Should you stop payments you have by manual defaulted of the offer.
These amounts are also nonrefundable. You absolutely want to make sure you qualify for your offer in compromise.
These amounts are applied to the tax liabilities and the taxpayer has a right to specify the particular tax liabilities to which the periodic payments will be applied.
The statutory time period gets extended when you file an offer in compromise.
Ordinarily, the statutory time within which the IRS may engage in collection activities is suspended during the period that the OIC is under consideration and is further suspended if the OIC is rejected by the IRS and where the taxpayer appeals the rejection to the IRS Office of Appeals within 30 days from the date of the notice of rejection.
If the IRS accepts the taxpayer’s offer, the IRS expects that the taxpayer will have no further delinquencies and will fully comply with the tax laws. If the taxpayer does not abide by all the terms and conditions of the OIC, the IRS may determine that the OIC is in default. The taxpayers federal tax lien also will get released.
Offers for Collectibility and effective tax administration
For doubt as to collectibility and effective tax administration OICs, the terms and conditions include a requirement that the taxpayer timely file all tax returns and timely pay all taxes for 5 years from the date of acceptance of the OIC.
When an OIC is declared to be in default, the agreement is no longer in effect and the IRS may then collect the amounts originally owed, plus interest and penalties. Additionally, any refunds due within the calendar year in which the offer is accepted will be applied to the tax debt.
Rejected offers in compromise
If the IRS rejects an OIC, then the taxpayer will be notified by mail. The letter will explain the reason that the IRS rejected the offer and will provide detailed instructions on how the taxpayer may appeal the decision to the IRS Office of Appeals.
The appeal must be made within 30 days from the date of the letter. You absolutely cannot miss this 30 days date and we suggest that you send it in by certified mail.
In some cases, an OIC is returned to the taxpayer, rather than rejected, because the taxpayer has not submitted necessary information, has filed for bankruptcy, has failed to include a required application fee or nonrefundable payment with the offer, or has failed to file tax returns or pay current tax liabilities while the offer is under consideration.
A return is different from a rejection because there is no right to appeal the IRS’s decision to return the offer.
Other back tax debt solutions
Beside the offer in compromise the IRS may consider that you have more necessary expenses and income. If that is the case the Internal Revenue Service can put you into a tax hardship. You will need to verify all income expenses on the IRS form 433F. You can stay into a tax hardship for two or three years before IRS will review your case again. If you have more income the necessary expenses IRS will place you into a monthly installment agreement or payment plan.
Before you contact the Internal Revenue Service it is best to contact a qualified tax professional to find out which is the best back tax debt solution that is right for you
Call us today for a free initial tax consultation and we can walk you through the process of different tax solutions.
We the we are the affordable tax experts located right here in South Florida in your own home community.
Back Tax Debt Solutions – IRS Experts, Former IRS, Since 1982 – Ft.Lauderdale, Miami, West Palm Beach – South Florida
by Fresh Start Tax | Jul 16, 2013 | Offer in Compromise
We are a local South Florida tax firm that specializes in IRS tax settlements called the offer in compromise.
We are an A+ rated professional tax firm located right here in your own home community of South Florida.
On staff are former IRS agents, managers and tax instructors that actually worked the offer in compromise program as former employees of the IRS.
We know all the tax protocols in the settlement formulas to get your offer in compromise approved by the internal revenue service if you are a qualified and suitable candidate.
We have worked hundreds and hundreds of offer in compromise cases both in private practice and as employees of the Internal Revenue Service.
As a result of our years of experience at the IRS we are experts in the offer in compromise.
There are many good tax firms that specialize in offer in compromise nationwide and we believe we are one of the finest firms because of our expertise and experience in IRS tax settlements.
While at the Internal Revenue Service we taught the offer in compromise program to new IRS agents.
What is a 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.
If the liabilities can be fully paid through an installment agreement or other means, the taxpayer will in most cases not be eligible for an OIC.
In order to be eligible for an OIC, the taxpayer must have:
- filed all tax returns,
- made all required estimated tax payments for the current year, and
- made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.
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 .
The RCP is how the IRS measures the taxpayer’s ability to pay.
The RCP includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. In addition to property, the RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.
The IRS may accept an OIC based on three grounds.
- First, acceptance is permitted if there is doubt as to liability. This ground is only met when genuine doubt exists under applicable law that the IRS has correctly determined the amount owed.
- Second, acceptance is permitted if there is doubt that the amount owed is fully collectible. This means that doubt as to collectibility exists in any case where the taxpayer’s assets and income are less than the full amount of the tax liability.
- Third, acceptance is permitted based on effective tax administration. An offer may be accepted based on effective tax administration when there is no doubt that the tax is legally owed and that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.
When submitting an OIC based on doubt as to collectibility or based on effective tax administration taxpayers must use the most current version of all Forms. Those forms are:
Those required forms are:
- 656 (PDF), Offer in Compromise, and also submit
- Form 433-A (OIC) (PDF), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or
- Form 433-B (OIC) (PDF), Collection Information Statement for Businesses.
- A taxpayer submitting an OIC based on doubt as to liability must file a Form 656-L (PDF), Offer in Compromise (Doubt as to Liability), instead of Form 656 and Form 433-A (OIC) and/or Form 433-B (OIC).
Required Application Fees
In general, a taxpayer must submit a $150 application fee with the Form 656. Do not combine this fee with any other tax payments.
There are, however, two exceptions to this requirement.
No application fee is required if the OIC is based on doubt as to liability.
The fee is not required if the taxpayer is an individual (not a corporation, partnership, or other entity) who qualifies for the low-income exception.
This exception applies if the taxpayer’s total monthly income falls at or below 250 percent of the poverty guidelines published by the Department of Health and Human Services. Section 4 of Form 656 contains the Low Income Certification guidelines to assist taxpayers in determining whether they qualify for the low-income exception.
A taxpayer who claims the low-income exception must complete section 4 of Form 656.
Taxpayers may choose to pay the offer amount in a lump sum or in installment payments.
A Lump Sum Offer
A “lump sum offer” is defined as an offer payable in 5 or fewer installments and within 24 months after the offer is accepted.
If a taxpayer submits a lump sum offer, the taxpayer must include with the Form 656 a nonrefundable payment equal to 20 percent of the offer amount. This payment is required in addition to the $150 application fee.
The 20 percent amount is called “nonrefundable” because it cannot be returned to the taxpayer even if the offer is rejected or returned to the taxpayer without acceptance. The 20 percent amount will be applied to the taxpayer’s tax liability.
The taxpayer has a right to specify the particular tax liability to which the IRS will apply the 20 percent amount.
Periodic payment offer
The offer is called a “periodic payment offer” under the tax law if it is payable in 6 or more monthly installments and within 24 months after the offer is accepted.
When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment along with the Form 656.
This payment is required in addition to the $150 application fee. This amount is nonrefundable, just like the 20 percent payment required for a lump sum offer.
Also, while the IRS is evaluating a periodic payment offer, the taxpayer must continue to make the installment payments provided for under the terms of the offer. Should you stop payments you have by manual defaulted of the offer.
These amounts are also nonrefundable. You absolutely want to make sure you qualify for your offer in compromise.
These amounts are applied to the tax liabilities and the taxpayer has a right to specify the particular tax liabilities to which the periodic payments will be applied.
The statutory time period gets extended when you file an offer in compromise.
Ordinarily, the statutory time within which the IRS may engage in collection activities is suspended during the period that the OIC is under consideration and is further suspended if the OIC is rejected by the IRS and where the taxpayer appeals the rejection to the IRS Office of Appeals within 30 days from the date of the notice of rejection.
If the IRS accepts the taxpayer’s offer, the IRS expects that the taxpayer will have no further delinquencies and will fully comply with the tax laws. If the taxpayer does not abide by all the terms and conditions of the OIC, the IRS may determine that the OIC is in default. The taxpayers federal tax lien also will get released.
Offers for Collectibility and effective tax administration
For doubt as to collectibility and effective tax administration OICs, the terms and conditions include a requirement that the taxpayer timely file all tax returns and timely pay all taxes for 5 years from the date of acceptance of the OIC.
When an OIC is declared to be in default, the agreement is no longer in effect and the IRS may then collect the amounts originally owed, plus interest and penalties. Additionally, any refunds due within the calendar year in which the offer is accepted will be applied to the tax debt.
Rejected offers in compromise
If the IRS rejects an OIC, then the taxpayer will be notified by mail. The letter will explain the reason that the IRS rejected the offer and will provide detailed instructions on how the taxpayer may appeal the decision to the IRS Office of Appeals.
The appeal must be made within 30 days from the date of the letter. You absolutely cannot miss this 30 days date and we suggest that you send it in by certified mail.
In some cases, an OIC is returned to the taxpayer, rather than rejected, because the taxpayer has not submitted necessary information, has filed for bankruptcy, has failed to include a required application fee or nonrefundable payment with the offer, or has failed to file tax returns or pay current tax liabilities while the offer is under consideration.
A return is different from a rejection because there is no right to appeal the IRS’s decision to return the offer.
Call us today for a free initial tax consultation and we can walk you through the process of an offer in compromise.
We the we are the affordable tax experts located right here in South Florida in your own home community.
Offer in Compromise – Affordable Tax Settlements – Miami, Ft. Lauderdale, Palm Beaches
by Fresh Start Tax | Jul 16, 2013 | Tax Help
We are comprised of tax attorneys, certified public accountants, and former IRS agents, managers and tax instructors who can get you a payment or installment agreement so you can pay IRS over time.
We have been in private practice since 1982 and we are A+ rated by the Better Business Bureau.
We are the affordable tax firm that can help you get an installment payment plan over a period of time that fits your financial needs.
A very important aspect of the IRS payment or installment plan is determined by the amount of tax you owe.
If you over $50,000 the process will be a little more complicated and if you will owe under $50,000 in the process can be very simple.
Contact us today and we can review your individual case and give you some tax options and easy solutions to permanently and immediately take care of your IRS tax debt.
Payment, Installment Plans
In-Business Trust Fund Express Installment Agreements
Small businesses who currently have employees can qualify for an In-Business Trust Fund Express Installment Agreement (IBTF-Express IA).
These installment agreements generally do not require a financial statement or financial verification as part of the application process.
The criteria to qualify for an IBTF-Express IA are:
You owe $25,000 or less at the time the agreement is established.
If you owe more than $25,000, you may pay down the liability before entering into the agreement in order to qualify.
- The debt must be full paid within 24-months or prior to the Collection Statute Expiration Date (CSED), whichever is earlier.
- You must enroll in a Direct Debit installment agreement (DDIA) if the amount you owe is between $10,000 and $25,000.
- You must be compliant with all filing and payment requirements.
Streamlined Installment Agreements
The Fresh Start provisions also mean that more taxpayers will have the ability to use streamlined installment agreements to catch up on back taxes.
Under the Fresh Start initiative, the maximum dollar criteria for streamlined installment agreements has been raised from $25,000 to $50,000 and the maximum term has been raised from 60 months to 72 months.
These installment agreements generally do not require a financial statement, but a limited amount of financial information may be required in the application process.
The Streamlined Installment Agreement criteria is divided into two categories, balance due of $25,000 or less, and balance due $25,001 to $50,000.
The criteria to qualify for streamlined installment agreements with a balance due of $25,00 or less are:
You owe $25,000 or less, at the time the agreement is established. If you owe more than $25,000, you may pay down the liability before entering into the agreement in order to qualify.
- The debt must be full paid within 72-months or prior to the Collection Statute Expiration Date, whichever is earlier.
- You must be compliant with all filing and payment requirements.
- Individuals who owe any type of tax (Form 1040, Trust Fund Recovery Penalty, etc.).
- Defunct businesses, including any type of entity and any type tax (Form 940, 941, 943, etc.).
- Operating businesses are limited to income tax liabilities only (Form 1120).
The criteria to qualify for streamlined installment agreements with a balance due of $25,001 to $50,000 are:
You owe $25,001 to $50,000, at the time the agreement is established.
If you owe more than $50,000, you may pay down the liability before entering into the agreement in order to qualify.
- The debt must be full paid within 72-months or prior to the Collection Statute Expiration Date, whichever is earlier.
- You must be compliant with all filing and payment requirements.
- Individuals who owe any type of tax (Form 1040, Trust Fund Recovery Penalty, etc.).
- Businesses are limited to defunct sole proprietors who owe any type of tax (Form 940, 941, 943, etc.).
- You must enroll in a Direct Debit Installment Agreement.
- A limited amount of financial information may be required during the application process.
Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with a Collection Information Statement (Form 433-A (PDF) or Form 433-F (PDF)).
You can make monthly payments through an installment agreement if you’re not financially able to pay your tax debt immediately.
However, you will reduce or eliminate the amount of penalties and interest you pay and avoid the fee associated with setting up an installment agreement if you pay your tax bill in full.
Before you apply:
- File all required tax returns;
- Consider other sources (loan or credit card) to pay your tax debt in full to save money;
- Determine the largest monthly payment you can make ($25 minimum); and
- Know that your future refunds will be applied to your tax debt until it is paid in full.
Fees for setting up an installment agreement:
- $52 for a direct debit agreement;
- $105 for a standard agreement or payroll deduction agreement; or
- $43 if your income is below a certain level.
Understand your agreement, avoid default
To keep your account in good standing:
- Pay at least your minimum monthly payment when it’s due (direct debit or payroll deductions make this easy);
- Include your name, address, SSN, daytime phone number, tax year and return type on your payment;
- File all required tax returns on time;
- Pay all taxes you owe in full and on time (contact us to change your existing agreement if you cannot);
- Continue to make all scheduled payments even if we apply your refund to your account balance; and
- Ensure your statement is sent to the correct address, contact us if you move or complete and mail Form 8822, Change of Address (PDF).
- If you don’t receive your statement, send your payment to the address listed in your agreement.
There may be a reinstatement fee if your agreement goes into default. Penalties and interest continue to accrue until your balance is paid in full.
If you are in danger of defaulting on your payment agreement for any reason, contact the IRS immediately.
The IRS will generally not take enforced collection actions:
- When an installment agreement is being considered;
- While an agreement is in effect;
- For 30 days after a request is rejected, or
- During the period the IRS evaluates an appeal of a rejected or terminated agreement.
Contact us today for free initial tax consultation. We can not only get you an IRS payment agreement over time we can also settle your case.
Need to Pay IRS Over Time, Payment, Installment Plans – Affordable
by Fresh Start Tax | Jul 15, 2013 | Expatriate Tax, FBAR
If you are having any issues or potential issues with the Internal Revenue Service contact us today. We are IRS experts for all offshore tax matters and tax problems.
The Treasury Department said it would delay for six months the implementation of a global regulatory system that aims to make it harder for Americans to hide money offshore.
In the first three years of the Internal Revenue Service and the Department of Justice Offshore Programs the feds raked in $5.5 billion.
IRS is going to slam the door shut on those taxpayers or businesses not paying their tax debt relating to their offshore bank accounts.
The best advice we can give you is to find IRS before they find you.
The Treasury delayed implementation of the new law for six months.
Effective Date now July 2014
The change means that central provisions of the Foreign Account Tax Compliance Act will go into effect in July 2014.
FATCA requires financial institutions in other countries to provide information to the U.S. government about accounts held by U.S. citizens.
Financial institutions in many countries are arranging to share the information through their own governments to avoid violating local privacy laws.
80 countries now getting involved
Treasury officials said they have signed nine agreements with other countries to implement the new law, and currently are negotiating with about 80 countries.
“Given the groundswell of international interest in FATCA, we are providing an additional six months to complete agreements with countries and jurisdictions across the globe,” said Robert B. Stack, the Treasury Deputy Assistant Secretary for international tax affairs.
Weekend Investor
The anti-evasion net being cast by the U.S. is inspiring similar efforts by other big countries.
Finance ministers from the Group of 20 large economies in April endorsed a global system similar to the U.S. measure that would help other countries combat tax evasion. But such a system is expected to take years to complete.
In the meantime, Treasury officials faced a tricky and difficult task in working out all the pending country-by-country agreements.
While the basic terms of the pacts are the same, crucial details vary—for instance, which low-risk financial accounts can be exempted from FATCA’s main requirements.
International banks and financial institutions also said the U.S. law would force them to cope with significant new complexity and absorb big compliance costs.
They’ve been urging more modifications to the planned system and longer lead times.
“While we had asked for an extension until Jan. 1, 2015, we greatly appreciate Treasury recognizing that financial institutions globally need more time to comply with this important law that our members continue to support,” said Payson Peabody, tax counsel at the Securities Industry and Financial Markets Association, a trade group. “We look forward to continuing our dialogue with Treasury in order to ensure that FATCA is implemented in accordance with the intent of Congress with the least possible disruption to financial markets.”
“FATCA is a tremendous undertaking for both the IRS and the financial services industry, and we think the extension is warranted and helpful,” said Sally Miller, CEO of the Institute of International Bankers.
Manal Corwin, a former top Treasury official who’s now an international tax practitioner at KPMG LLP, said she expects a significant number of agreements to be between the U.S. and other countries by the new deadline.
“Just because an agreement is not publicly signed doesn’t mean it’s not far along,” she said. “I’m confident that [Treasury officials] will” conclude a substantial number of agreements by mid-2014.
contributed to this article, tks John Mc Kinnon
IRS Offshore Tax News – Warning for those who are hiding their money, IRS is coming
by Fresh Start Tax | Jul 15, 2013 | IRS Tax Debt
We’re a local South Florida tax firm that specializes in IRS and state tax debt settlements.
38% of all debt settlement requests made to IRS are accepted.
If you want to settle your tax debt with the Internal Revenue Service or the State contact us today for a free initial tax consultation.
We are experts in debt settlement with the Internal Revenue Service.
We are a local South Florida tax firm who has been in private practice in South Florida since 1982.
We have an A+ rating by the Better Business Bureau and have over 206 years of professional tax experience.
You can come by and visit our offices today for a free initial tax consultation and see if you qualify for IRS tax debt settlement.
You can speak directly to tax attorneys, certified public accountants, former IRS agents, managers and/or tax instructors that have worked hundreds of cases involving debt settlements between their clients and the Internal Revenue Service.
We are local tax experts and tax resolution relief and can offer you several solutions to immediately and permanently resolve your IRS or state tax matters.
Before you apply for tax debt settlement with the Internal Revenue Service make sure that you are a qualified and suitable candidate for their debt settlement program called an offer in compromise.
There is a pre-qualifier tool for debt settlement that you can find on our website that you could walk by yourself to make sure you’re a qualified debt settlement candidate before you spend any money.
What is the Debt Settlement Program by IRS?
The IRS debt settlement program by the Internal Revenue Service is called the 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.
If the tax liabilities can be fully paid through an installment agreement or other means, the taxpayer will in most cases not be eligible for an OIC.
To be eligible for an OIC,
In order to be eligible for an OIC, the taxpayer must have:
- filed all tax returns,
- made all required estimated tax payments for the current year,
- and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.
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 .
The RCP is how the IRS measures the taxpayer’s ability to pay. The RCP includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property.
In addition to property, the RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.
The IRS may accept an OIC based on three grounds.
- First, acceptance is permitted if there is doubt as to liability. This ground is only met when genuine doubt exists under applicable law that the IRS has correctly determined the amount owed.
- Second, acceptance is permitted if there is doubt that the amount owed is fully collectible. This means that doubt as to collectibility exists in any case where the taxpayer’s assets and income are less than the full amount of the tax liability.
- Third, acceptance is permitted based on effective tax administration. An offer may be accepted based on effective tax administration when there is no doubt that the tax is legally owed and that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.
When submitting an OIC based on doubt as to collectibility or based on effective tax administration taxpayers must use the most current version of the forms :
- Form 656 (PDF), Offer in Compromise,
- and also submit Form 433-A (OIC) (PDF), Collection Information Statement for Wage Earners and Self-Employed Individuals,
- and/or Form 433-B (OIC) (PDF), Collection Information Statement for Businesses.
- A taxpayer submitting an OIC based on doubt as to liability must file a Form 656-L (PDF), Offer in Compromise (Doubt as to Liability), instead of Form 656 and Form 433-A (OIC) and/or Form 433-B (OIC).
Application Fee
In general, a taxpayer must submit a $150 application fee with the Form 656. Do not combine this fee with any other tax payments.
There are, however, two exceptions to this requirement.
- First, no application fee is required if the OIC is based on doubt as to liability.
- Second, the fee is not required if the taxpayer is an individual (not a corporation, partnership, or other entity) who qualifies for the low-income exception. This exception applies if the taxpayer’s total monthly income falls at or below 250 percent of the poverty guidelines published by the Department of Health and Human Services. Section 4 of Form 656 contains the Low Income Certification guidelines to assist taxpayers in determining whether they qualify for the low-income exception. A taxpayer who claims the low-income exception must complete section 4 of Form 656.
Different types of OIC
Taxpayers may choose to pay the offer amount in a lump sum or in installment payments.
- A “lump sum offer” is defined as an offer payable in 5 or fewer installments and within 24 months after the offer is accepted. If a taxpayer submits a lump sum offer, the taxpayer must include with the Form 656 a nonrefundable payment equal to 20 percent of the offer amount. This payment is required in addition to the $150 application fee. The 20 percent amount is called “nonrefundable” because it cannot be returned to the taxpayer even if the offer is rejected or returned to the taxpayer without acceptance. The 20 percent amount will be applied to the taxpayer’s tax liability. The taxpayer has a right to specify the particular tax liability to which the IRS will apply the 20 percent amount.
- The offer is called a “periodic payment offer” under the tax law if it is payable in 6 or more monthly installments and within 24 months after the offer is accepted. When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment along with the Form 656. This payment is required in addition to the $150 application fee. This amount is nonrefundable, just like the 20 percent payment required for a lump sum offer. Also, while the IRS is evaluating a periodic payment offer, the taxpayer must continue to make the installment payments provided for under the terms of the offer. These amounts are also non-refundable. These amounts are applied to the tax liabilities and the taxpayer has a right to specify the particular tax liabilities to which the periodic payments will be applied.
Ordinarily, the statutory time within which the IRS may engage in collection activities is suspended during the period that the OIC is under consideration and is further suspended if the OIC is rejected by the IRS and where the taxpayer appeals the rejection to the IRS Office of Appeals within 30 days from the date of the notice of rejection.
If the IRS accepts the taxpayer’s offer, the IRS expects that the taxpayer will have no further delinquencies and will fully comply with the tax laws.
If the taxpayer does not abide by all the terms and conditions of the OIC, the IRS may determine that the OIC is in default.
For doubt as to collectibility and effective tax administration OICs, the terms and conditions include a requirement that the taxpayer timely file all tax returns and timely pay all taxes for 5 years from the date of acceptance of the OIC.
When an OIC is declared to be in default, the agreement is no longer in effect and the IRS may then collect the amounts originally owed, plus interest and penalties.
Additionally, any refunds due within the calendar year in which the offer is accepted will be applied to the tax debt.
OIC Rejection, Appeals
If the IRS rejects an OIC, then the taxpayer will be notified by mail. The letter will explain the reason that the IRS rejected the offer and will provide detailed instructions on how the taxpayer may appeal the decision to the IRS Office of Appeals.
The appeal must be made within 30 days from the date of the letter. In some cases, an OIC is returned to the taxpayer, rather than rejected, because the taxpayer has not submitted necessary information, has filed for bankruptcy, has failed to include a required application fee or nonrefundable payment with the offer, or has failed to file tax returns or pay current tax liabilities while the offer is under consideration.
A return is different from a rejection because there is no right to appeal the IRS’s decision to return the offer.
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Debt Settlement IRS Taxes – IRS & State Tax Help – Miami, Ft.Lauderdale, Palm Beaches
