IRS Tax Reduction Process
I am a former IRS agent and teaching instructor. The Internal Revenue Service has a very specific process to reduce your tax bill.
I actually taught the offer in compromise program when I worked with the Internal Revenue Service. We are tax experts in the IRS tax reduction process.
There are two specific ways that you can reduce your IRS tax bill the first is an abatement of penalties and interest, the second is through the offer in compromise program.
The Internal Revenue Service receives 58,000 offers in compromise to reduce a taxpayer debt.
The Internal Revenue Service accepts 38% of all offers in compromise through this IRS tax reduction process.
The tax reduction process through an offer in compromise is not what people think.
You must be a qualified candidate before IRS will accept a tax reduction on your behalf. With many companies on the web advertising settlements for pennies on a dollar, the Internal Revenue Service has been flooded by taxpayers thinking that IRS will reduce everybody’s tax debt easily . If this was the case there would be Disney World lines around  IRS buildings nationwide.
There is a very specific process for the offer in compromise. The Internal Revenue Service  has  a pre-qualifier tool for the tax reduction process.
You can find that on our website.
Simply go on the homepage click on IRS forms and you will find the pre-qualifier tool for the offer in compromise.
Before we take any money or retainer from a client we will walk you through this process and see if it is feasible for a taxpayer to reduce their tax bill through the IRS tax reduction process called the offer in compromise.
The New Offer in Compromise Program is called Fresh Start
Offers 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. This is why you must use the pre qualifier tool.
 
In order to be eligible fore the OIC

For an OIC to be process 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.

 
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 RCP is how the IRS measures the taxpayer’s ability to pay.Basic IRS wants to know about your assets and income. They could care less about your liabilities.
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.

1. Acceptance is permitted if there is doubt as to liability. This simply means you did not owe the tax.

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 is the most common IRS tax reduction process. This is a pennies on a dollar settlement.

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 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.

These IRS tax reduction situations are far and few between. Most of these offering compromises that are accepted occur because of medical situations.

 Necessary Forms for the IRS Tax Reduction
When submitting an OIC based on doubt as to collectibility or based on effective tax administration taxpayers must use the most current version of :
 

• 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 for the OIC

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.
 
Choosing to pay -Payment Types
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 in compromise .
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 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.
If IRS rejects the Tax Deduction – Office of 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. Please make sure you understand that both are different
Once again before you attempt to settle your case is for pennies on a dollar walk through the IRS  tax reduction process called the offer in compromise. It is on our website.
Remember, you must be a qualified taxpayer for the settlement process.
IRS will require all documents including all canceled checks, bank statements and provable income and expenses for the last year.
Contact us for free initial tax consultation.


 
IRS Tax Reduction Process – Affordable Solution with Former IRS