Offers in Compromise
An Offer in Compromise may allow you to resolve your IRS debts for an amount substantially less than you owe. The focus is not on the amount of the liability, but on how much you can afford to pay. Even the IRS can’t get blood out of a stone, so if the proper procedures are followed it will settle on the basis of “doubt as to collectibility.” Less frequently, offers can be based on “doubt as to liability,” or in the interest of “effective tax administration.” A side benefit is that while the IRS is considering your Offer in Compromise proposal, it is legally prohibited from pursuing collection activity against you. In other words, while the Offer is in the pipeline the IRS cannot seize assets or garnish your wages.
Despite efforts to make it more “user-friendly,” the Offer in Compromise program remains difficult and frustrating, and it is getting worse all the time. Remember, these are the same folks who brought you that simple, easy to understand Form 1040. Most people do not have the experience or the knowledge of IRS collection policies and procedures to be able to assemble and effectively negotiate an Offer in Compromise. As a result, the IRS turns back most Offers as “unprocessable” before they even get to the merits of the offer proposal. And of those deemed processable, most are rejected. Accordingly, it is very important to do it right the first time.
Contact us to see if you might qualify
We will ask you about your situation and give you a preliminary idea of what you would have to offer to have a reasonable chance of the Service accepting a settlement proposal. We can also then give you a better estimate of what it would cost to have us represent you in preparing and negotiating the Offer in Compromise. If you do decide to retain our services, we will send you a formal engagement letter and then begin preparing your Offer in Compromise. We will also consider, with your assistance and active participation, whether other alternatives might be available to you.
After filing a Power Of Attorney form with the IRS, we typically secure “transcripts” of your accounts to verify that your tax returns, withholding credits and payments have been properly posted, and to determine whether the statute of limitations on collections is near expiration. Often, we also file a request under the Freedom of Information Act to get the IRS’s files on your case so we can see the basis for the assessments, previously filed financial statements, internal computations of your ability to pay — anything that would help us get the full picture and to therefore represent you more effectively.
Preparing a good Offer in Compromise requires extensive discussions with you, often by email or over the telephone to save time and cost, to understand the details of your financial circumstances. This is essential so that we can properly prepare the necessary IRS Collection Information Statement (Form 433-A(OIC)) on which the IRS’s evaluation of the Offer in Compromise is based. You will have several opportunities to review the Collection Information Statement and supporting documents and to provide any additional information or materials needed to make the offer package complete and correct before it is sent to the IRS.
There is an opportunity for vigorous and creative advocacy in presenting financial information to the IRS. The IRS’s policies “allow” certain kinds of expenditures in computing a taxpayer’s ability to pay, and thus whether an offer is acceptable, but only if the taxpayer fully documents the need for the expenditure in question. Knowing the rules and the extent of the IRS’s flexibility on these issues is crucial to obtaining the best possible result. We will work with you to present your financial information in the best possible light, and to thus increase the chances of successfully compromising your tax debts.
Filing the Offer in Compromise
Once the Offer in Compromise and the related Collection Information Statement and supporting documents are assembled and properly organized, the Offer package is filed with the appropriate IRS office. The IRS has taken steps over the past 15 years to speed up the processing of Offers, but the process is still painfully slow. Often, the IRS takes so long to review the Offer that updated financial information must be submitted when the Offer package is finally reviewed by the Service. Upon receiving questions or a request for updated information, we would respond to the IRS by gathering and sending whatever new data is needed, or answering any questions the Offer examiner may have. (Please note that about 25% of Offers are rejected simply because taxpayers fail to respond to the IRS’s requests for additional information.)
As noted above, the IRS is precluded from taking levy and distraint action while the Offer in Compromise is pending. This can free you from the threat of IRS seizures or levies for a year or more, given the length of time it takes the IRS to process Offers these days (although a Notice of Federal Tax Lien can still be filed even while the Offer proposal is pending).
During the time the Offer in Compromise package is being assembled and submitted, and throughout the process of review, negotiation and possible appeal, we would handle all correspondence and discussions with the IRS. You would not have to meet with an IRS Revenue Officer at any time, or respond to any notices or correspondence (except to forward copies to us).
Paying the compromise amount
If you are proposing to pay the offered amount within 5 months of the Offer’s acceptance, 20% of the offered amount must be paid when the Offer is filed, along with a $186 application feel. If you are proposing to pay the offered amount in 6 to 24 months, then you must make the proposed monthly payments while the Offer is pending. The first month’s payment (and the $186 application fee) must accompany the Offer.
If your Offer is accepted, the IRS will release any previously-filed tax liens as soon as you pay the offered amount,. This is crucial to repairing your credit or permitting you to sell real estate or other assets.
Contact us; we can help you determine the minimum amount you would have to offer to the IRS to compromise your tax liabilities.
Some representation companies specialize in submitting quick and dirty offers that have little chance of success, merely to gum up the IRS machine. These offers are typically poorly prepared and lack the required supporting documentation. Some of these folks are merely incompetent and others are crooks plain and simple. The IRS is aggressively clamping down on these “offer mills.” Don’t waste your money.
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NegotiatingOffersinCompromise, as published by the Maryland Society of Accountantsin “The Freestate Accountant” as part of Mr. Haynes series on “Dealing with the IRS Collection Division.”