The Offer in Compromise (OIC) program is available to taxpayers who owe the IRS more than they could ever possibly pay. OIC gives the IRS authorization to reduce outstanding tax liabilities, including interest and penalties, for less than the full tax due.
This is by far the best way to significantly reduce the amount of tax debt you have, often times up to 90% and even 95%! If you owe a significant amount, this can literally mean the difference between surviving the ordeal or not in financial terms.
Reasons for going after an OIC Agreement
The federal government will usually approach going after an OIC agreement if any of the following issues are in place:
- Doubt as to Collectibility
- Doubt as to Liability
- Effective Tax Administration (Hardship Cases)
Any person or entity (business) that can incur a federal tax liability can submit a request for an offer. This includes:
- Married Couples
- Incorporated Businesses
- Non-Profit Organizations
- Trustees of Trusts
- Executors of Estates
An OIC is effective for the entire amount of taxes owed, including penalties and interest. Various federal tax liabilities, regardless of tax type, age or amount, can be combined into oneOIC.
The IRS objectives of the program are:
- To efficiently collect what is reasonably possible with the least amount of government expense
- To resolve tax indebtedness in the best interest of the taxpayer and the government
- To give taxpayers a new start enabling them to file and pay future taxes when due
- To collect funds that cannot be collected otherwise
A Quick Word Of Warning
One thing that we have seen happen over-and-over through the years is individuals try to negotiate an offer in compromise agreement by themselves (without any legal counsel), and end up divulging much more information than they should regarding their financials. Not only did this backfire when the IRS refused to grant them an OIC, but it also gave the government enough extra information to slap on additional fees, fines and interest rates.
So take a word of wisdom from us – whether you go with us, or another tax relief company, or decide not to hire anyone – don’t try and negotiate an OIC by yourself. You need expert help to make sure you don’t sabotage your own case.
How to Get Started
If you think that your tax liability is something you could never pay back, or is incorrect for whatever reason, you should give us a call today to learn what your options are. Our in-house tax lawyers are all incredibly experienced in getting favorable negotiations on these types of cases, and are your best shot of saving a significant amount of money on what you owe. Give us a call today to learn more.
Doubt as to Collectibility
To request an Offer in Compromise agreement based on doubt of collectibility means you doubt your ability to ever pay the IRS the full amount of tax owed. This is usually a tough conclusion to negotiate on your own, so we recommend talking with an expert before attempting anything.
What Determines Doubt as to Collectibility?
Before requesting an agreement for this reason, taxpayers must not be able to pay their tax debt by:
- Liquidating all assets, or
- Meeting the guidelines for an Installment Agreement
The IRS Process of Determining Eligibility
There are two basic components used by the IRS to determine what a taxpayer can or cannot pay:
- Value of assets owned, and
- Potential for future payment
Asset Evaluation – The IRS will want to know the current value of all assets if sold today. These assets include property, vehicles, boats, home furnishings, investments, retirement savings, and any other possessions of value.
When reviewing your request to close your case as Currently Not Collectible (CNC), OIC investigators determine the value of your assets, your future earning ability, and any assets available to you that are beyond the reach of the government.
They will usually claim the asset is worth more than a taxpayer will. Asset values can be questioned and adjusted based on circumstances, and usually a fair compromise can be reached.
Future Payment – The IRS will want to determine how much a taxpayer could pay each month on a five-year installment agreement. They will consider many factors such as age, health, work status, and education to predict the probability of future income increases.
Important Currently Not Collectible Factors
- The government will continue to enforce collections on individuals even if they cannot pay. It is the taxpayer’s responsibility to provide proof of his current financial status.
- Temporarily classifying a case as CNC stops current collection action. However, the tax liability is not eliminated and will continue to increase due to penalties and interest.
- The IRS may continue to monitor your financial status annually to determine if your finances have improved. Collection efforts can resume at any time.
- The IRS has the authority to grant a CNC status based on a Collection Information Statement (CIS) that is no more than a year old. An experienced tax attorney can ensure the accuracy of this information.
- Even if a taxpayer’s CIS lists income or assets that can be levied, he can still qualify for a CNC status. He must be able to show that the collection of the delinquent taxes would impair his ability to pay for necessary living expenses.
- Each case is unique. Special circumstances are considered in all cases, such as health, age, education, etc.
- If the taxpayer can afford $25 monthly, the IRS will require the taxpayer to accept an installment agreement before his case is placed in CNC.
- If the IRS believes future collection efforts will be successful, or if the tax debt is $5,000 or more, a lien will be filed before an account is deemed CNC.
Effective Tax Administration (Hardship Offers)
The Effective Tax Administration (ETA) Offer is the most recent addition to the Offer in Compromise package, allowing the taxpayer to claim hardship.
Severe hardship”, simply stated, means the taxpayer acknowledges the validity of the tax debt and can pay the amount owed in full. However, he or his family will suffer severe hardship as a result. Qualifying for tax relief under hardship claims is usually the most difficult. It is recommended to have a professional tax attorney to assist with filing Form 433-A and supplying the detailed information required.
Beginning the ETA Process
Your tax professional can help you develop a very detailed statement regarding the exceptional circumstances surrounding your case. These circumstances must prove that paying your tax debt in full would create an ecomic hardship, or would be unfair. An experienced tax professional knows how to approach the IRS and give you the best chance for acceptance.
Prior to considering an ETA Offer, the IRS must determine that:
- You do not qualify for an OIC based on collectibility
- You do not qualify for an OIC based on questioned liability
- You do not qualify for an OIC due to a lengthy history of tax problems
Three Situations that May Support an Economic Hardship Claim
- A medical condition, disability or illness exists that limits the taxpayer’s ability to make a living. Further, all the taxpayer’s financial resources will be required to pay for medical care.
- Paying the tax liabilities in full would leave the taxpayer unable to pay basic living expenses (food, housing, utilities, clothing, mecial, etc.)
- Although a taxpayer may have sufficient value in assets to pay off the tax liability, these assets cannot be borrowed against. Also, the IRS cannot seize these particular assets to pay off the taxes.
Who is Most Likely to Qualify for ETA Offers?
Those who can most often successfuly utilize the ETA Offers are:
- People with life-threatening illnesses
- People having family members with life-threatening illnesses
- People living on limited fixed-income
- Business owners, not at fault for an underlying tax liability, who would have to close their business if they had to pay