OFFER 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. Absent special circumstances, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.
In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay and includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.
THREE TYPES OF OICS
The IRS may accept an offer in compromise based on three grounds:
1. Doubt as to Collectibility - Doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection.
Example: A taxpayer owes $20,000 for unpaid tax liabilities and agrees that the tax she owes is correct. The taxpayer’s monthly income does not meet her necessary living expenses. She does not own any real property and does not have the ability to fully pay the liability now or through monthly installment payments.
2. Doubt as to Liability - A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider the taxpayer’s evidence or (3) the taxpayer has new evidence.
Example: The taxpayer was vice president of a corporation from 2004-2005. In 2006, the corporation accrued unpaid payroll taxes and the taxpayer was assessed a trust fund recovery penalty as a responsible party of the corporation. The taxpayer was no longer a corporate officer and had resigned from the corporation on 12/31/2005. Since the taxpayer had resigned prior to the payroll taxes accruing and was not contacted prior to the assessment, there is legitimate doubt that the assessed tax liability is correct.
3. Effective Tax Administration - There is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.
Example: Mr. & Mrs. Taxpayer have assets sufficient to satisfy the tax liability and provide full time care and assistance to a dependent child, who has a serious long-term illness. It is expected that Mr. and Mrs. Taxpayer will need to use the equity in assets to provide for adequate basic living expenses and medical care for the child. There is no doubt that the tax is correct.
OIC PAYMENT OPTIONS
In general, a taxpayer must submit a $150 application fee and initial payment along with the Form 656, Offer in Compromise. Taxpayers may choose to pay their offer in compromise in one of three payment options:
1. Lump Sum Cash Offer - Payable in non-refundable installments, the offer amount must be paid in five or fewer installments upon written notice of acceptance. A non-refundable payment of 20 percent of the offer amount along with the $150 application fee is due upon filing the Form 656.
If the offer will be paid in 5 or fewer installments in 5 months or less, the offer amount must include the realizable value of assets plus the amount that could be collected over 48 months of payments or the time remaining on the statute, whichever is less.
If the offer will be paid in 5 or fewer installments in more than 5 months and within 24 months, the offer amount must include the realizable value of assets plus the amount that could be collected over 60 months of payments, or the time remaining on the statute, whichever is less.
If the offer will be paid in 5 or fewer installments in more than 24 months, the offer amount must include the realizable value of assets plus the amount that could be collected over the time remaining on the statute.
2. Short Term Periodic Payment Offer - Payable in non-refundable installments; the offer amount must be paid within 24 months of the date the IRS received the offer. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the offer investigation.
The offer amount must include the realizable value of assets plus the total amount the IRS could collect over 60 months of payments or the remainder of the statutory period for collection, whichever is less.
3. Deferred Periodic Payment Offer - Payable in non-refundable installments; the offer amount must be paid over the remaining statutory period for collecting the tax. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the investigation.
The offer amount must include the realizable value of assets plus the total amount the IRS could collect through monthly payments during the remaining life of the statutory period for collection.
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. In this situation, the OIC investigator may advise the taxpayer as to what larger amount or different terms would likely be recommended for acceptance.
PAYMENTS AND APPLICATION FEES
When filing an offer in compromise, two separate remittance documents should be sent, one for the application fee and the other for the required offer payment. All payments should be made by check or money order made payable to the United States Treasury. Practitioners who file multiple OICs at the same time should not combine application fees for multiple clients.
The Form 656-PPV, Offer in Compromise Payment Voucher, included in the Form 656, should be completed and attached to any periodic payment(s) that becomes due. Failure to submit any required periodic payments, after the initial payment has been submitted, will result in the offer being declared withdrawn. For offers originally sent to Holtsville, NY, send payments to: P.O. Box 9011, Holtsville, NY 11742. For offers originally sent to Memphis, TN, send payments to: AMC Stop 880, P.O. Box 30834, Memphis, TN 38130-0634.
The OIC application fee reduces the assessed tax or other amounts due. The application fee will be returned if the OIC is deemed not to be processable. Unless the offer in compromise has been submitted under doubt as to liability or a completed Form 656-A is included with the Form 656, the $150 application fee must be included with the offer or the IRS will return the offer.
Installment Agreement - Whether you call it an installment agreement, payment agreement, payment option or a payment plan, the idea is the same — you make payments on the tax you owe. That sounds like a good deal, but you can save money by paying the full amount you owe as quickly as possible to minimize the interest and penalties you’ll be charged. For those who cannot resolve their tax debt immediately, however, an installment agreement can be a reasonable payment option. Installment agreements allow for the full payment of the tax debt in smaller, more manageable amounts.
FREQUENTLY ASKED QUESTIONS ABOUT INSTALLMENT AGREEMENTS/PAYMENT PLANS
Source: www.irs.gov
Levies and Wage Garnishments - A wage garnishment can result from affecting a levy resulting from a long delinquent tax liability. Garnishment rules can vary, but in simple terms, the IRS takes a portion of your paycheck every pay period, and contributes the amount they take toward paying off your delinquent tax debt. The Wage Garnishment will remain in place until the tax is paid in full or until a Wage Garnishment release has been processed. This is something we can help you with.
Having your wages garnished is an extremely stressful and financially crippling experience for American consumers who need tax relief. The Tax Attorneys and Tax Specialists who work with AMTASCO work hard to immediately contact the IRS or State to attempt to release your paycheck from garnishment, and then structure a solution to resolve the delinquent tax liability. This could be in the form of an Offer in Compromise, Statute Expiration, or even an Installment Agreement.
Filing Late Taxes - Most taxpayers who cannot afford the their tax liability choose to become non-filers (stop filing). Our Tax Attorneys and Tax Specialists believes that it is always in the best interest of the consumer to file their taxes, regardless of their ability to pay. The economic consequences of not filing timely are severe; 25% late filing penalty plus interest, which often adds up to 50% of tax due. We can help you file your back taxes even if you have not filed for years or don’t have your records.
Payroll Taxes - The IRS and the State is very aggressive in enforcement of employers who do not file and pay their employment taxes on time. Employment taxes can usually not be discharged in a bankruptcy regardless of how old the liability is. If you have Payroll Tax Liabilities, you need to address this immediately. There are solutions available. It is best to address your problems as they don’t go away, they only get worse over time.
Tax Penalties - Abatement or adjustment of a tax liability means to reduce or change a tax, penalty, or interest. Usually, abatement means eliminating an assessed tax liability and adjustment means reducing or altering an assessed tax liability. If there is a reasonable cause for abatement or adjustment, the IRS may be willing to review the penalties which created a tax liability.
The position of the IRS is that a penalty may not be assessed if the taxpayer’s liability is a result of reasonable cause. They are not very kind to purposeful neglect. Death or illness in the immediate family, forced absence, taxpayers residence being in a natural destruction or a reasonable cause for taxpayer not being able to obtain records are some examples of reasonable cause.
Innocent Spouse- The IRS is considerate towards a spouse who may not be aware or not be at fault for the creation of a tax liability. There are certain rules and tests that apply to determining if you qualify for this relief. Please speak with our Tax Attorneys or Specialists to determine if you qualify to be an Innocent Spouse.
INNOCENT SPOUSE TAX RELIEF ELIGIBILITY EXPLORER
Equitable Relief
All the facts and circumstances are considered in determining whether it's inequitable to hold you liable. Some of the factors considered include:
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The taxes owed are your spouse's or ex-spouse's.
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You are no longer married to that spouse.
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You thought your spouse would pay the taxes on the original return.
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You didn't know about the items changed in the audit.
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You would suffer a financial hardship if you were required to pay the tax. You would not be able to pay for basic living expenses like food, shelter, and clothing.
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You did not significantly benefit (above normal support) from the unpaid taxes.
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You suffered abuse during your marriage.
Source: www.irs.gov
Currently Not Collectable (CNC) - If the taxpayer does not qualify for any other tax relief programs offered by the IRS or State, they may qualify for a CNC if one of the following apply. Each case is unique, please consult our Tax Attorneys or Specialists to see if you are a CNC candidate.
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inability to locate the taxpayer or assets
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partial expiration of the assessment prior to issuance
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complete expiration of the statutory period for collection or suit initiated to reduce tax claim to judgment
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for International casework, inability to collect a liability from a taxpayer living in a foreign country
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a corporation, exempt organization, or Limited Liability Company (LLC) , where the LLC is identified as the liable taxpayer, liquidated in bankruptcy
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death of an individual with no collection potential from the decedent estate or no collection potential for estate taxes
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accounts below tolerance See IRM 5.16.1.2.5(1) and (2) Tolerance, for additional information
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corporations, certain limited liability partnerships, exempt organizations, or LLCs, where the LLC is identified as the liable taxpayer, which are inactive and defunct with no assets
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inability to contact a taxpayer although the address is known and there is no means to enforce collection
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a corporation, exempt organization, limited partnership, or LLC, where the LLC is identified as the liable taxpayer, remains in business and is current but is unable to pay back taxes
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when suspending collection of BMF balance due accounts when the key individual is deployed to a combat zone; see IRM 5.1.7.9.1 ,Business Masterfile (BMF) Accounts of Taxpayers Deployed to a Combat Zone, for additional information
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corporate income tax liabilities owed by a financial institution certified as insolvent by the Office of the Controller of the Currency or the Office of Thrift Supervision
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collection of the liability would create a hardship for taxpayers by leaving them unable to meet necessary living expenses
Source: www.irs.gov
Other Tax Relief Alternatives - We have several other options available that will help you resolve your debt. Please speak with one of our Tax Attorneys or Specialists for a No-Obligation Consultation. |