Browse through our articles pertaining to Offer in Compromises such as OIC fees, IRS OIC pre-qualifier tool, and more. Contact MW Attorneys with any questions.

OIC Comes in Different Flavors

Posted by Wetenkamp on
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It may surprise you to learn that there is a tax resolution program on the books that permits the IRS to write off a tax liability or settle a tax debt for less than what is owed even though the taxpayer has the ability to pay it in full.

You’ve probably heard of the Offer in Compromise (a.k.a., tax settlement), but you may not be aware that there are several different kinds of offers.  Here is a brief overview:

  1. Doubt as to Liability Offer: Genuine doubt exists that the IRS has correctly determined the amount owed.
  2. Doubt as to Collectibility Offer: Taxpayer cannot fully pay the tax due; therefore, the IRS accepts an amount equal to what it reasonably can expect to collect — “Reasonable Collection Potential” (RCP) — as payment in full.
  3. Doubt as to Collectibility (Special Circumstances): Taxpayer cannot fully pay the tax due but has proven special circumstances that warrant acceptance for less than RCP.
  4. Effective Tax Administration Offer: RCP is greater than the liability (i.e., on paper the taxpayer has the ability to pay in full) but there are economic or public policy/equity circumstances that would justify accepting the offer for an amount less than full payment.

Some additional requirements for ETA Offers:

  • Taxpayer does not qualify for consideration under the other OIC programs
  • The taxes can be paid in full either by lump sum payment or via installment agreement
  • compromise of the liability does not undermine voluntary compliance with the tax laws

 

IRS Makes Potentially Huge Changes to OIC Program

Posted by Wetenkamp on with 0 Comment

The IRS recently announced some historic modifications to the Offer in Compromise (OIC) program which could result in drastic increases in accepted offers.  I say it “could” have this result because the IRS is notorious for not training its personnel to understand their own rules.  Changes such as these take quite a while to trickle down to the rank-and-file IRS employees who handle most collections case.  And sometimes parts are lost or misinterpreted during the trickling process.

By far the most significant change that was announced has to do with the way the IRS calculates a taxpayer’s reasonable collection potential.  Previously this would have included the combined equity in all assets and the future earning capacity projected over 4-5 years following the offer’s acceptance.  It will still include all the equity in assets but now the future income calculation should be multiplied across only 1-2 years.

Some taxpayers have no available income (after paying allowable expenses), and this change will have no impact at all on them.  However, for everyone else, this change may mean the difference between an accepted or a rejected OIC.  If the IRS is serious about implementing these changes, then I think more people will obtain tax relief because more people will meet the criteria for the Offer in Compromise program.  And if other practitioners think like I do, then we should see a big increase in OIC filings, which will mean a backlog of OIC cases and longer delays.  So we’ll have to take the good with the bad on this one.

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Filing OIC? Take a Number.

Posted by Montgomery on with 0 Comment

The IRS has done quite a bit to promote the Offer in Compromise program during the economic downturn of the last few years, and the message is coming across loud and clear.  That’s the good news.  The bad news is the IRS can’t seem to handle the onslaught of new offers.

The Offer in Compromise (OIC) is a program whereby the IRS accepts an amount that is less than the tax liability to forever settle what is owed.  The rationale behind the OIC program is this: if the taxpayer can prove that the amount offered is the absolute most he/she can pay and the IRS will most likely never be able to collect the full tax debt, it is better for the government to cut their losses and take it rather than expend any more resources trying to collect some unknown amount at some unknown time in the future.

According to a recent audit report by the Treasury Inspector General for Tax Administration (TIGTA), there are huge OIC backlogs at both the Memphis and the Brookhaven Offer Units, but Memphis is in worse shape than Brookhaven.  The IRS is in the process of transferring cases between sites to even things out, but precious time is lost in the transfer process, so who knows if that will truly reduce delays.

Offers with the following characteristics can expect the longest delays:

  • taxpayer is self-employed
  • taxpayer earns over $100,000 per year
  • taxpayer owes over $50,000 in back taxes
  • taxpayer lives in a state handled by the Memphis OIC Unit (AK, AL, AZ, CA, CO, HI, ID, KY, LA, MS, MT, NV, NM, OR, TN, TX, UT, WA, WI, WY)

Offer in Compromise

Posted by Montgomery on with 0 Comment

The Offer in Compromise (OIC) is often considered the ultimate form of tax relief. If you are considering an OIC to address your outstanding IRS tax debt, there are a few things you should know.

First, not everyone with a tax debt should attempt an OIC. The OIC is a special program generally reserved for low-income taxpayers with few assets. The OIC filing fee is $150 and the IRS also requires that you pay 20% of your offer amount up front when the offer is filed. Unless you are confident that the offer is going to be accepted, you may be better off saving yourself these fees.

Second, not everybody who meets the criteria for the OIC should file an OIC. Basically, it just has to make good sense. For example, the offer amount must be low enough in comparison to the overall tax debt. Also, if the balances you owe are old and about to expire, you may be in a situation where it would make more sense to “wait out” the statute of limitations rather than make an offer to the IRS.

Third, a tax attorney can maximize your chances of filing a successful Offer in Compromise. An experienced tax attorney will help you determine if the OIC is right for you and if it makes sense to file. An experienced tax attorney has the skills needed to present your financial information in a manner that is most advantageous to you.

Offer in Compromise: The 24-month Rule

Posted by Wetenkamp on with 0 Comment

The IRS has 24 months from the date that anOffer in Compromise is received to make its decision.  If the IRS does not accept, reject, or return the offer within 24 months, then it is deemed accepted  (IRM 5.8.8.6).  According to IRS policy, “The timeliness of case actions in an offer investigation is important not only to ensure the efficiency of the process but also is a key component of taxpayer satisfaction”  (IRM 5.8.1.2).

But lets face it, the Offer in Compromise process can be lengthy and the IRS has never been very good with taxpayer satisfaction.  It routinely takes several months just for the IRS to mark the offer as received and assign it to an Offer Examiner.  And that’s only the beginning of the process.

I have never seen the 24-month mandatory acceptance provision come into play.  Certainly the responsible IRS employee(s) would be disciplined, if not fired, for letting the 24-month period expire.  My problem with the 24-month rule is that it does not have the intended effect.  In fact, it seems like it is quite the opposite.  An astute IRS representative with a caseload he can barely keep up with will probably delay as long as he can, even though the entire process could easily be completed in 30-60 days.