Category Archives: Offer in Compromise

IRS Offer in Compromise (OIC)

IRS Offer in Compromise (OIC)

The IRS Offer in Compromise (OIC). It is an important tax savings vehicle that can result in you paying pennies on the dollar. You’ve seen the commercials. If you owe $10,000 in back taxes, give us a call. The IRS Fresh Start Program. And the commercials go on and on.

How do OICs really work?

An IRS Offer in Compromise (OIC) is not a series of forms such as the Form 656, Form 433 A OIC, or Form 433 B OIC. It’s not an IRS Offer in Compromise Pre Qualifier tool. The IRS Offer in Compromise (OIC) is not a negotiating tool, that allows you to “negotiate” with the IRS, despite what you saw on TV. In fact, an offer in compromise is acceptable to the government when it can collect more by accepting the offer than it would by collecting against the taxpayer.

The government, like other creditors, encounters situations where its tax accounts receivable cannot be collected in full. Also, the taxpayer may present a legitimate dispute as to the amount owed. Therefore, it is an accepted business practice to resolve these issues through negotiation and compromise.

What Offers in Compromise does the IRS actually accept?

The IRS may accept an offer in compromise when it is unlikely that the tax liability can be collected in full. Also, the amount offered reasonably reflects the collection potential or exceeds it. An IRS Offer in Compromise (OIC) is a legitimate alternative to declaring a case currently not collectible or a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.

IRS Collections

Generally, the IRS has 10 years to collect a tax debt from the date of assessment. For example, a 2018 tax return is due on April 17, 2018. Therefore, the assessment occurs on the day of filing the tax return filed, or April 17, 2018 (tax day). The debt would therefore expire on April 17, 2028. This is called the collection statute expiration date, or CSED. The IRS generally actively collects during the first 7 years, although the debt remains in force for 10. Federal tax liens show the CSED date.

 Installment Agreement

The IRS usually will offer an installment agreement for 72 months. That’s 6 years. If you pay using an IRS installment agreement, bear in mind a 0.5% penalty added to the balance monthly, plus interest, which I estimate at 0.5%. Interest rates are rising, so its simply an estimate.

OIC Payment plan

The OIC generally has two payment options. One is in less than 24 months. The second is up to 60 months.

Currently Not Collectible

Currently not collectible means that the IRS cannot collect. In essence, the taxpayer is unable to pay back taxes. There can be many reasons. For example, under IRS Collection Financial Standards, the taxpayer does not have income to service the debt. This might include corporations, limited liability partnerships (LLP), exempt organizations, or LLCs, deemed inactive and defunct with no assets. The collection of the liability would create a hardship for taxpayers by leaving them unable to meet necessary living expenses.

Accepted OICs

Therefore, if your IRS Offer in Compromise (OIC) offers more than can be collected, it has a strong chance of being accepted. If the debt can be paid in full for 72 months, the length of the installment agreement, then the OIC has a low chance of acceptance.

The Secret to OIC Acceptance

Our firm has had success in accepted OIC for persons and businesses. This is because we have presented a strong case that the taxpayer is offering more than is otherwise collectible. We do not accept the IRS’s standardized quick sale values, or QSV. Rather, we estimate a reasonable discount upon quick sale value and discount that pursuant to the taxpayer’s marginal tax rate, which in some cases is higher than the standardized IRS values.

In conclusion, to induce the IRS to accept an OIC, you should present that case that the government will receive more than it would otherwise in the collections process.

Contact us if you need some help.

Miami Tax Attorney

Offer in Compromise

Offer in Compromise (OIC).

Should you consider an Offer in Compromise?
An Offer in Compromise allows you to settle your tax debt for less than the full amount you owe. It may be an option if you can’t pay your full tax liability. Also, the OIC may be an option if paying your full tax liability creates a financial hardship for you.

Due to the complexity of the OIC, we very strongly recommend you contact us prior to attempting an OIC.

OIC Acceptance Rate.
The IRS accepts less than half of the Offers in Compromise it receives. Before the IRS can consider an offer, you must be current with all filing requirements. Your tax returns must be filed for the prior six years.

Generally, if it appears to the IRS that you can pay your balance in full within 6 years, then the IRS may reject your OIC. Notably, the IRS uses a complicated methodology to analyze your financial situation.

Mistakes.
In our experience, IRS agents make errors when conducting the financial analysis as well. In our view, many taxpayers incorrectly calculate their monthly income. Furthermore, we believe that many taxpayers incorrectly calculate their monthly expenses.

For example, if you are paid bi-weekly, you should multiply your check amount by 2.17 to determine your monthly income. Additionally, if you are calculating your monthly expenses, you may be required to apportion your expenses if you are married, even if your spouse is not liable. You do this by computing a pro rata percentage based upon your contribution to total household income. Then, you take your pro rata expense deductions based upon the allowable amount for the entire household.

The IRS has an Offer in Compromise Pre-Qualifier tool at IRS.gov. In our view, and based upon the mistakes we’ve seen, the offer in compromise tool is very difficult to use.

Appeal.
If your OIC is not accepted, then you have the right to appeal in certain cases.

If you need any help with an OIC please contact us.