Offer in Compromise (OIC)

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Settling Crippling Tax Debt for Pennies on the Dollar

Seriously . . . it's True!

This is that one process that outfits tout on TV and Radio.  They make it sound easy and almost anyone can qualify.  Donít waste your money on the hype.  Get the true story before you spend thousands of dollars.  You can get a reasonable estimate of your chances of success for just a few hundred dollars.  It does take some work to review and prepare an analysis to see what you qualify for.  But, you donít spend thousands, as so many do, just to be empty handed . . . and an empty wallet.

At the same time here, I donít want to discourage you.  A lot of people pass on this opportunity not knowing they can qualify.

This is a Federal level government settlement program that has been around since 1882.  Itís nothing new.  A lot of States have a compromise program also.  MI does not have one.  The OIC not going away any time soon.  People put different labels on it to make it sound new and special.  The TV and radio hype is to get you to ďBuy Today!Ē  If the government is about to take action against you, then there is an urgency to address it.

The Internal Revenue Service Offer in Compromise process gives taxpayers with crippling tax debt a chance to settle for pennies on the dollar.  How much you can settle for depends on your unique financial profile. Each case is judged on its own merits.

The ultimate goal of an offer-in-compromise is a settlement that is in both the Government's and the taxpayer's best interest.  The Internal Revenue Service will accept an offer-in-compromise to settle unpaid accounts for less than the amount owed when there is doubt that the liability can be collected in full and the amount you offer reasonably reflects your potential ability to pay.  This may be an alternative for resolving your tax delinquency.

If the basis of the offer is doubt that you owe the liability, for example, a disputed assessment, you must provide a written statement of supporting evidence.  The Service cannot accept a compromise where the liability has already been decided by a court.

In May 2012 the Internal Revenue Service made substantial changes to the OIC calculations.  This was very surprising to tax professionals who have never seen the Internal Revenue Service so lenient.  If you have a tax debt to settle, I would suggest doing it now, before this recession ends, as it may be likely that the Internal Revenue Service will  reverse this change. As of this writing (Dec 2012) the recession is still choking the economy.  GDP is at a meager 2%.  Not a growth rate, but stagnant.  Therefore, itís still advisable to settle now rather than to wait.  Once the economy picks up, the IRS will likely revert back to its old rules and seek to get more out of taxpayers as their capacity increases.

To submit an offer-in-compromise you must complete Form 656; complete instructions are provided on the form.  If the basis of the offer is doubt that the liability can be collected in full, you must submit Form 433A (OIC), Collection Information Statement for Individuals, and/or Form 433B, Collection Information Statement for Businesses.  These forms provide a statement of your income, expenses, assets, and liabilities.

The amount of the offer should at least equal or exceed your equity in all assets.  When reviewing an offer, the Internal Revenue Service considers these factors:

  1. The amount collectible from your assets

  2. The amount collectible from present and future income,

  3. The amount that can be collectible from 3rd parties; and

  4. Sources of funds that are available to you but not subject to the Service's collection for example, workers compensation and veteran's benefits.

It is your responsibility to show how acceptance of the offer would be in the best interest of the Government.

Generally, the Internal Revenue Service will not accept an offer unless it is clear that you have complied with all current filing and paying requirements.  The acceptance of an offer by the Internal Revenue Service creates a "fresh start"; therefore, the terms of the offer require future compliance with all tax filing and paying requirements for a period of 5 years.  If you do not abide by all the terms of the offer, including the compliance requirement, the Internal Revenue Service may reinstate the entire tax liability.

Additional information about the Offer-in-Compromise can be found on Form 656, and in Publication 594, Understanding the Collection Process.

Offer in Compromise Hardship Rule (Effective Tax Administration).  In some cases where paying on a normal compromise situation would create a financial hardship, the Internal Revenue Service can accept offers for less than what the 'Reasonable Collection Potential' may indicate.  A financial inconvenience does not qualify.  This is for cases whereas the taxpayer has enough assets to pay a compromise but due to other factors, such as health, it would create a hardship for the taxpayer to pay because the taxpayer then would not be able to pay for necessary healthcare.  (This is just one example. There can be many reasons and factors.)

 

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You have the right to representation by an Enrolled Agent (EA), CPA or Attorney.
You don't have to face the Internal Revenue Service alone, or at all!

 


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