I am a former IRS agent, teaching instructor and have both worked and taught the IRS offer in compromise/tax settlement program at the Internal Revenue Service.
I have reviewed hundreds and hundreds of offer in compromises. I have accepted them at the Internal Revenue Service is a working agent and I have taught the IRS tax settlement program called the offer in compromise is a former IRS agent teaching instructor.
I am a tax expert when it comes to the IRS settlement program called the offer in compromise.
Last year Stats on OIC/IRS Settlement
Last year the Internal Revenue Service received 58,000 offers in compromise and accepted 38% of all offers filed. This is an upward trend from the last five years. This was the highest percentage from any previous year.
In speaking to an agent who works the offer in compromise program they stated that 90% of all those offers that were accepted were prepared and represented by a professional tax firm. Repetition is the father of success.
I highly recommend that a professional firm prepare and submit your offer in compromise because true professionals understand the criteria and the special nuances of the offer program.
The offer in compromise program is not for everybody. Many persons feel they can settle with the IRS for pennies on the dollar but there is very exacting criteria to get your case settled with the IRS.
The IRS now has a pre-qualifier tool that you can find on our website that will aid taxpayers as to whether they are a qualified and true candidate for the IRS tax settlement program.
Why to Hire a True Tax Professional
You hire a true professional tax firm because you want to win.
If you try this program by yourself the chances are your fall flat on your face. I can tell you this because I have seen the results as a former IRS agent.
There are many programs and initiatives the average taxpayer can do by themselves to avoid professional fees and costs unfortunately the IRS tax settlement program is not one of these.
A true tax professional will save you thousands of dollars and settle your case the first time around. The Internal Revenue Service has very specific formulas for the tax settlement program. It is important to know that you must give IRS to total value of your liquid assets as a base settlement. IRS will also review the value of your money on a monthly basis to determine the criteria of the settlement.
The other reason you do not want to self prepare is the simple reason that you don’t want expose yourself to the Internal Revenue Service when it is unmerited. If the Internal Revenue Service rejects your offer in compromise it gives them a complete roadmap to your assets and ability to pay.
The Internal Revenue Service will do an exhaustive asset search to find out if you are hiding assets are not revealing everything on your financial statement. The IRS will do a LEXIS-NEXIS – Accuraint search as well as a Google search on your name.
Beside that, the Internal Revenue Service will check Department of motor vehicle records, credit reports, and asked to see copies of various financial statements that you have given to third parties where you’ve applied for credit.
IRS does a very thorough job and working in the IRS tax settlement program called the offer in compromise.
In the last three years the Internal Revenue Service is making great strides to help taxpayers deal with their back IRS debt.
To the new Fresh Start program or Fresh Start initiative offered by the IRS shows that the IRS is reaching out to taxpayers and wanting them to settle their tax debt if they qualify through the offer in compromise program.
Before taxpayers go trying to settle their debts through the offer in compromise, taxpayer should be asking a lot of questions to the representatives they hire or screen to make sure that they are a qualified candidate for the offer in compromise program.
Once again, not all taxpayers qualify for the program.
I would suggest any taxpayer contemplating the tax settlement of an offer in compromise with the Internal Revenue Service to walk through the program with a professional firm before they give their money to anyone.
Taxpayers should also be aware that the Internet is full of splash page advertising promising tax settlements for the offer and compromise program, they claim they can settle for pennies on the dollar.
Most of these firms offering such claim are companies in business today and gone tomorrow.
Taxpayers need to ask a lot of questions and more specifically they need to speak to the person that may be working their case to settle their tax debt for pennies on the dollar.
Do not be tricked into talking into a fast talking salesperson about settling your case because it sounds real good.
I would highly recommend that all taxpayers check for the Better Business Bureau ratings, check for the company’s credentials, ask the company about similar cases that were worked what settlement was reached and ask to speak to the person directly that will be working their case within the firm. If you cannot speak to the tax professional who will be handling your case do not hire the tax firm.
As far as pricing goes, most offer in compromises from true tax professional companies will range anywhere from $4-$7500 based on the complexity of the case. This fee is very well justified because of the experience and professionalism of tax firm.
There are very few easy offers in compromise cases and most needs require a high degree of expertise to settle the case.
How to Settle with the IRS with a Offer in Compromise/IRS Tax Settlement
To find out how to settle with the Internal Revenue Service read the following and find out the tax protocols in dealing with the offer in compromise/tax settlement.
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). The reason for this is quite simple, the IRS can just sees the asset and collect the full value.
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.
Most offers in compromises take any where between 20 hours to work by an IRS agent. Also if an the offer and compromise is accepted it becomes a matter of public record and is available for public inspection.
The offer in compromise or tax settlement stays on record for one year at the regional tax offices for public inspection. That’s right, you can walk right into a regional office and asked them to see their accepted offers in compromise.
The IRS may accept an OIC based on three grounds.
1. 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.
2. 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.
3. Acceptance is permitted based on effective tax administration.
An offer in compromise 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.
Exceptional circumstances IRS tax settlements
You should know that the IRS receive very few offers based on exceptional circumstances. These are extremely hard offers to get IRS to accept. These offers are very subjective and must be documented as to the exceptional circumstance.
A good example of an exceptional circumstance OIC would be somebody that is undergoing cancer and may not have a long time to live.
When submitting an OIC based on doubt as to collectibility or based on effective tax administration taxpayers must use the most current version of:
1. Form 656 (PDF), Offer in Compromise,
2. also submit Form 433-A (OIC) (PDF), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or
3. 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).
In general, a taxpayer must submit a $150 application fee with the Form 656.
There are, however, two exceptions to this requirement.
1. No application fee is required if the OIC is based on doubt as to liability.
2. 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.
Offer Options / IRS Tax Settlements
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 nonrefundable.
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 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 you default on a accepted OIC or Tax Settlement
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.
Should the offer in compromise the fault the taxpayer account will return immediately to the field workforce collections actions will take place.
It is though no offer was ever accepted by the Internal Revenue Service and the taxpayer must start all over again.
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.
If a Offer in Compromise Defaults
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.
If your offer in not accepted, Appeal
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.
It requires a lot of skill to deal with an offer in compromise. I would highly recommend any taxpayer contemplating the filing of an offer in compromise contacted true tax professional.
