Negotiate Offer in Compromise/Tax Debt Settlements
5 Facts about the Offer in Compromise Settlements
1. The average Offer in Compromise Settlement takes between 6- 9 months to work by the IRS,
2. The average Offer in Comprise settlement is 14 cents on a dollar,
3. 38% of all offers in compromise are accepted by the IRS,
4. All accepted Offers in Compromise Settlements are a matter of Public record,
5. The average time it take the IRS to work an Offer in Compromise is between 10 – 20 hours.
IRS Payment Plans
Over 6 million taxpayers enter into IRS payment plans, installment agreements or monthly payments each and every year in back taxes.
Taxpayers must complete and fully document IRS form 433F that you can find directly on our website to get in IRS payment plan.
The Internal Revenue Service will take a close look at your income and your expenses and will compare those to the national standards found in your region that you live in.
It is extremely important to hire a tax professional who knows the system to get an IRS payment plan that is both fair to you in the Internal Revenue Service.
Taxpayers are unrepresented will find that the IRS will want more than you are willing to pay. Do not be bullied by the IRS.
The Offer in Compromise Settlement Program
The new Fresh Start Program offered by the IRS is making life simple for those who qualify for an Offer in Compromise Settlement however a professional tax company has a much better chance of getting Offers in Compromise accepted because they understand the guidelines the Internal Revenue Service has set forth.
The filing of an Offer in Compromise Settlement and settling back taxes is much more than filling out the paperwork and submitting it to the IRS.
Our experience staff has former IRS agents who have worked the Offer in Compromise (OIC) program while at the IRS.
They have the knowledge necessary to get Offers in Compromise through the system if you qualify for the program.
Before an Offer in Compromise is filed, all the facts and your current financial statement need to be reviewed.
Before you spend any money or waste your time, let our staff walk you through the process. We have been processing Offers in Compromise for a combined 60 years just with the IRS alone.
There is a New Pre-Qualifier Tool on our Website
To crack down on the amount of offers in compromise that are filed, the IRS has put out a new pre-qualifer tool to make sure that taxpayers are qualified and suitable candidate so they do not waste their time and money filing an offer compromise that has no chance of being accepted.
You can look at our homepage, click on IRS forms, and click on the pre-qualifier tool and you can walk through the information yourself to see if you qualify for offer compromise.
You should not give your money to any firm or tax professional unless you’re a truly qualified candidate for an offer in compromise
The Offer In Compromise Settlement
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 tax 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:
1. the taxpayer must have filed all tax returns,
2. made all required estimated tax payments for the current year, and
3. 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 Settlement unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential. 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.
The IRS may accept an Offer in Compromise Settlement based on three grounds.
1. Doubt as to Liability.
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. Doubt to Collectability.
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. Effective Tax Administration.
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. The acceptance of these offers are very difficult to get accepted.
Submission of the Offer in Compromise Settlement
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 Offer in Compromise Settlement
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.
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.
Selecting your Offer in Compromise Settlement Terms
Taxpayers may choose to pay the offer amount in a lump sum or in installment payments.
A Lump Sum Offer Settlement
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.
Periodic Payment Offer in Compromise Settlement
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 Period of Time Rule
Ordinarily, 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 Offer in Compromise Settlement
If the IRS rejects an OIC, then the taxpayer will be notified by mail.
The rejection 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.
The New Fresh Start Program by the IRS – Offers in Compromise Settlement (OIC)
The Offer in Compromise program permits qualified taxpayers with outstanding and unpaid tax liabilities to negotiate a full settlement for an amount that is less than the tax owed.
An OIC agreement generally will not be accepted by the IRS if it believes that the outstanding liability can be paid through a lump sum or other type of payment arrangement.
The IRS typically reviews the taxpayers’ income, expenses, assets and liabilities in great detail to make a determination regarding the taxpayers’ ability to pay.
In an effort to expand this program to a greater number of struggling taxpayers, the IRS has become more flexible in what it deems “ordinary and necessary” expenses in arriving at a taxpayer’s net monthly income.
Specifically, under the “Fresh Start Program,” the IRS has expanded the Allowable Living Expense Category to include additional expenses, such as credit card payments and bank fees, while increasing the total amount allowable.
The program also allows expenses for the repayment of student loans and delinquent state and local taxes. IRS has really tried to help the struggling taxpayer.
The most significant change to the OIC program under the “Fresh Start” initiative is the change in the calculation of the taxpayer’s “reasonable collection potential” under the future income component.
The “reasonable collection potential” (RCP ) is determined by analyzing the taxpayer’s net realizable equity in assets and future income.
The IRS now considers only one year of future income for offers that will be paid in full within five months when previously they considered four years of income.This is a huge change because the multiplier was such a huge number and scores of taxpayers could never pay off the offer.
The IRS will now consider two years of future income for offers paid in full within six to 24 months, down from five years of income.
For taxpayers whose reasonable collection potential is driven by future income and less by net realizable equity in assets, this change is likely to have a meaningful impact in the determination of whether they qualify for an OIC.
The overall result of these changes and improvements is that increasingly more financially troubled taxpayers will qualify for OIC relief.
Some Negative Implications
Apart from these favorable changes, there may still be negative implications of filing an OIC.
A potentially negative repercussion is that information provided through the OIC would provide the IRS with a financial road map for seizure and enforced collection action in the event the offer is rejected or withdrawn or the taxpayer defaults on the offer.
As a former IRS agent myself, any offer I received gave me a direct avenue to collect the tax if I rejected the offer and I had every potential collection tool available for me based on the current financial statement provided to me by the taxpayer.so use caution.
What IRS will check if you submit an Offer in Compromise
Be fully apprised the IRS will conduct a:
- Full Google Search,
- Get a copy of your credit reports,
- Check the Accuriant Search Engines,
- Pull licenses searches,
- May also use Lexis Nexis
Noteworthy – Submission of an Offer in Compromise will automatically extend the statute of limitations for collection during the duration of the offer, plus 30 days, which will give the IRS more time to try to collect the full balance owed.
We will provide straightforward answers to questions about an Offer in Compromise.
- Does an Offer in Compromise apply to me?
- How much can I settle my tax debt for with the IRS?
- What are my Offer in Compromise payment options?
- What factors affect the settlement outcome with an Offer in Compromise?
The IRS is not bound by either the offer amount or the terms proposed by the taxpayer. The OIC investigator may negotiate a different offer amount and terms, when appropriate. The investigator may determine that the proposed offer amount is too low or the payment terms are too protracted to recommend acceptance.
Am I Eligible For An Offer In Compromise?
Important items to know about an Offer in Compromise:
- You must be compliant for two consecutive quarters (six months) before an offer can be submitted.
- The advantage of an OIC is that the amount you pay is considerably less than what is actually owed. All principal and interest stops accruing and most of the time enforced collection is suspended.
- One of the rules for the OIC is that you must remain current and compliant for five years after acceptance.