Settle a IRS Tax Debt – Offers in Compromise – Former IRS Agent
Mr. Michael D. Sullivan is a former IRS Agent and Teaching Instructor who both worked and taught the IRS Debt Settlement program at the IRS called the offer in compromise.
The new IRS Fresh Start Program has made Settling with the IRS a reality. The old Offer Program was broke and it was almost impossible for taxpayers to get Offers in Compromise through the system. The government lost millions of dollars in lost revenue because of a antiquated system. The IRS now has finally done the right thing, help struggling taxpayers.
IRS roughly gets 55,000 offers presented to them each year with an average acceptance rate of 25%. With the new Fresh Start Program I would not be surprise if we do not break the 100k mark this year. With that said, there is no telling at this time how long it will take to process the Offers. Before the New Fresh Start Program there were 7500 cases in the Que, the cases must be stacked up against the wall.
With Millions of taxpayers owing back taxes to the IRS, the average tax payer has 3 ways to basically get the IRS of there back. The taxpayer must give IRS a current financial, either a 433A or a 433F depending on where the case is in the IRS system.
IRS will then review the financial statement and all correspondence to document the numbers placed on the 433A and 433F to make sure the financial statement is correct. Based on the National Standards IRS will either place the case in;
1. Hardship,
2.Part Payment or installment status.
3. The feasibility of an Offer in Compromise.
Before taxpayers go running off submitting Offers in Compromise to settle their tax debt it is a best practice to have a tax professional pre-screen the Offer to make sure the Offer can and will be accepted by the IRS. Offers are very complex and not easily accepted by the IRS.It is easier for IRS to reject the offer and accept it. It is far less work.
About 20 hours of government work goes in to an accepted Offer in Compromise. If accepted it makes its way up the chain of command getting approval after approval before it is finally signed off by a IRS Tax Attorney for legal purposes.
All accepted offers in compromise can be found in regional office at the IRS for public review and inspection.
The New Fresh Start Program
Changes the IRS has made as part of its “Fresh Start” initiative over the past two years have made it easier for taxpayers to qualify for alternative payment programs. The Fresh Start changes should provide a good incentive for taxpayers to work with the IRS to resolve past due back taxes.
IRS Code Section 6159
If a client or taxpayer is unable to pay in full, Sec. 6159 allows the IRS to enter into a monthly payment plan (installment agreement). The IRS also has the authority to settle the tax, penalties, and interest by negotiating an offer in compromise (OIC). This is a contract between the taxpayer and the government to settle the tax debt for less than the full amount owed.
The Offer in Compromise calculation
When the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months, down from four years, and two years of future income for offers paid in six to 24 months, down from five years. This is a huge change
All offers must be fully paid within 24 months of the date the offer is accepted.
The Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise, has been revised to reflect the changes.
Changes to the OIC
Other changes to the program include narrowed guidelines and clarification of when a dissipated assets will be included in the calculation of reasonable collection potential.
In addition, equity in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.
Each offer is based on its own set of circumstance so it is best to have Fresh Start Tax review and process your offer.
Do not pay a firm to submit your offer unless you fully understand the ramifications of the program.
Changes to Allowable Living Expenses
The Allowable Living Expense standards are used in cases requiring financial analysis to determine a taxpayer’s ability to pay. The standard allowances provide consistency and fairness in collection determinations by incorporating average expenditures for basic necessities for citizens in similar geographic areas. These standards are used when evaluating both installment agreement and offer in compromise requests.
The National Standard miscellaneous allowance has been expanded to include additional items.
A New Change – Taxpayers can use the miscellaneous allowance for expenses such as credit card payments and bank fees and charges.
Other payments now allowed as expenses.
New guidance has also been clarified to allow payments for loans guaranteed by the federal government for the taxpayer’s post-high school education. In addition, payments for delinquent state and local taxes may be allowed based on percentage basis of tax owed to the state and IRS.
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Settle a IRS Tax Debt – Offers in Compromise – Former IRS Agent – Fresh Start Tax
