To settle an OIC (Offer in Compromise), how much will I have to pay the IRS?

Posted on September 5, 2012 by Marty Martelle

In an Offer in Compromise (OIC), how much is required to be paid to the IRS?

Usually the determining factor in deciding whether to file an Offer in Compromise is the amount necessary to settle with the Internal Revenue Service.

How does the IRS determine how much a Taxpayer must pay to settle an OIC?

There are basically 2 criteria: the amount of the equity in the taxpayers assets and the amount the IRS could get from the taxpayers excess income, after deducting reasonable living expenses.  This article will deal with the amount of equity in assets.  This is the starting point to calculate how much it will take to settle an Offer in Compromise.  The information in this article is simplified and general.  For specific information, contact a Tax Attorney.

Value of Assets in an Offer in Compromise

The IRS starts with the equity in assets, based on a quick sale value.  This amount must be paid in an OIC.  The IRS starts with the quick sale value of the asset.  This is usually considered to be 80% of its actual value.  Then they deduct any exemption.

For example if a taxpayer has a car worth $10,000, the IRS considers the value to be 80% of that or $8,000.  If the taxpayer owes $2,000 on the car, that amount is deducted from the value, leaving $6,000 in value.  The IRS allows in an Offer in Compromise a $3,500 exemption.  So, the value that must be paid to the IRS in an OIC is $6,000 less $3,500 or $2500.

Each asset is valued in a similar fashion.  There are many nuances concerning exemptions.  If a taxpayer is in business, any assets, such as equipment that are used for the production of income are not included.

This is a huge change, which has made it far easier for taxpayers in business to file Offers in Compromise.  It used to be that taxpayers had to pay the value of all business assets.  That made it difficult for small businesses to file an OIC.

There are many items that are exempt and are not included in calculating the amount necessary to pay the Internal Revenue Service to settle an OIC.  Examples include furniture and personal items, exemptions for vehicles, some money in the bank and a variety of other exemptions.  To determine how these exemptions apply to your particular situation, please contact us.

This is the first test for how much must be paid to settle an Offer in Compromise (OIC).  The second test is how much of a taxpayers future income must be paid to the IRS.  That will be discussed in the next post.  For more information about Offers in Compromise, please visit our website

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IRS issues new rules for Offers in Compromise (OIC)

Posted on August 8, 2012 by Marty Martelle

Dramatic Reduction in amount required to settle an IRS Offer in Compromise (OIC)!

In a dramatic change in policy the Internal Revenue Service has issued new rules for acceptance of Offers in Compromise.

In the past the IRS has required taxpayers to pay an amount equal to their excess income for 4 years, all payable upon acceptance of and Offer in Compromise.  They recently made a huge change and now allow OIC’s to be settled for the amount of excess income for 1 year. They must also pay the value of their equity in assets.

‘For example under the old OIC rules if a taxpayer had $1,000 of excess income they were required to pay the IRS $48,000 to settle an OIC.  Now, they only have to pay $12,000.  If they have only $100 of excess income they pay $1,200 to settle, no matter how much they owe.  They, however, must pay an amount equal to the equity in their assets in addition.  For more specifics visit http://www.martellelaw.org/offer-in-compromise

EQUITY IN ASSETS

Equity in assets generally means the quicksale value of property after exemptions.  Property exempt includes:

  • Household furniture and furnishings
  • Personal property
  • $3,450 equity in a vehicle per taxpayer (2 if married)
  • Up to $1,000 cash
  • Property necessary to produce income

The value of non exempt assets for Offer in Compromise purposes is calculated using a Quick Sale Value or Auction Value.

EXCESS INCOME

The amount of excess income is calculated by determining how much income the taxpayer(s) have.  Then what the IRS considers to be reasonable living expenses are deducted from the income.

The difference between the income and the expenses X 12 is the amount necessary to be paid to the IRS.

For example if the taxpayers have assets that are not exempt with a value of $1,000 and excess income of $100 per month, then they must pay the IRS $1,000 plus $1,200 ($100 per month times 12) for a total of $2,200 to settle their Offer in Compromise.

The amount that must be paid is not in any way tied to how much the taxpayer owes the Internal Revenue Service.  They could owe $20,000 or $200,000 and they would pay the same $2,200 to settle all of their tax debt!

The information in this article is very much a simplification, used to illustrate the new rules.  Offers in Compromise are very complicated.  You should consult with a Tax Attorney to get representation in submitting and negotiating an OIC.

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What is an “Offer in Compromise” and do I qualify?

Posted on July 31, 2012 by Marty Martelle

Simply put, an Offer in Compromise is a deal between the IRS and a taxpayer or a business to settle all of their tax liability for a certain sum, to be paid in a certain way.  But, Offers in Compromise can be very difficult to process and to get accepted.  You need a skilled Tax Attorney to represent you to have realistic chances of success.

How much do I need to Offer the IRS to settle my tax liability?

The amount necessary to settle an Offer depends totally on how much the value of your equity in assets is, plus as much as the Internal Revenue Service believes they can get from your earnings over the next year.  The following is a gross simplification of how we determine the amount of an OIC.

Asset Value is determined by finding out the quick sale value of assets, deducting the amount of any liens against the asset.  The difference is the equity in the property.

Excess Income is calculated by determining how much income the taxpayer or business makes and then deducting what the Internal Revenue Service believes is a reasonable amount for living expenses.

How are Offers in Compromise processed by the IRS?

OIC’s are put together by your Tax Attorney.  They require a great amount of paperwork to file.  The IRS wants to see proof of all of your income, all of your expenses and the value of assets.  Once the paperwork is put together, the Offer is submitted.  Then, it sits at the IRS until it is assigned to an Offer Specialist.  This may take the better part of a year.  Once the Offer Specialist has it, they look it over and ask for updated financial information.  Then they will contact your Attorney and the negotiating process will begin.  The IRS does not just give the Offers away.  They want to insure that they are getting the most money that they can from the Taxpayer.

Will my OIC get accepted?

The short answer is that whether an Offer gets accepted depends in part on your particular circumstances.  If you qualify, it should be accepted.  But, it also depends on the job your Tax Attorney does in representing you.  Taxpayers should beware of who they hire.  There are many unscrupulous outfits out there who will take the money and run.  For information of some of them, see our website:  Ripoff Warnings

Stay tuned for the next in our series on Offers in Compromise.

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Offers In Compromise, a series of articles about the program

Posted on July 25, 2012 by Marty Martelle

One of the most frequently asked questions of us, as Tax Problem Resolution Attorneys is: “can I settle my taxes with the IRS for a portion of what I owe?”

The main way of settling tax debt is through an Offer in Compromise or OIC.

The IRS has made huge changes to the Offer program recently. They have reduced by 75%, in most cases the amount required to settle an OIC. That is right!! 75% reduction in the amount required to settle an Offer in Compromise! They have also made numerous exemptions for property that they no longer count in calculating how much a taxpayer must offer to settle their debt to the IRS. In many cases, that is literally pennies on the dollar.

This series of articles will explain what and OIC is, how they work and what it takes to qualify for one. Basically an Offer in Compromise is an agreement between a taxpayer, either individually or as a business to settle their tax debt for a portion of what is owed.

Simply put, the Internal Revenue Service wants as much as they can get from a person’s excess earnings for the next year, plus an amount equal to the equity in their assets. Before the changes they wanted as much as they could get from excess income for 4 years. This reduces the amount needed to settle an Offer by 75%!

In the next several articles we will discuss how Offers work, what it takes to qualify for an OIC and other information about Offers in Compromise.  For more information, visit our website:  Martelle Law

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IRS reduces amount required to settle an OIC by 75%

Posted on July 20, 2012 by Marty Martelle

In a broad sweeping change of the Offer in Compromise program, the Internal Revenue Service has dramatically reduced the amount required to settle an OIC.  Before the changes, the IRS required that a taxpayer pay an amount equal to 48 times their excess income to settle an Offer.  Now they require only 12 times the amount of excess income. 

For example if a taxpayer, family or business had $5,000 of income and $3,500 of IRS allowed expenses they would have to pay the difference of $500 X 48 or $24,000 to settle their Offer in Compromise.  Now, they will have to pay the difference of $500 X 12 or $6,000.  This is 75% less than they required in the past!  This creates a huge opportunity for people to settle their taxes for a small percentage of what they actually owe.  It doesn’t matter how much they owe, the Offer is based strictly on ability to pay. 

In addition, under the new guidelines many assets are exempt from the calculations.  In the past, if a taxpayer had business equipment, vehicles or money in the bank they would have to pay an amount equal to the value of the asset, less any secured debt against it. 

Now, if an asset is used for the production of income in a business, the taxpayer doesn’t have to add its value to the amount being offered.  Also, there are exemptions for the value of vehicles and other assets. 

These new rules make Offers in Compromise available to many people who didn’t qualify under the old rules.  You will still need a competent tax professional to represent you in your OIC, though.  The procedure in filing and negotiating an Offer is still very complicated and has many pitfalls. 

For more information or for a no obligation consultation as to whether you qualify for an Offer in Compromise, please visit our website: http://www.martellelaw.org/offer-in-compromise

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Things to Do Before Considering Bankruptcy

Posted on May 11, 2012 by Marty Martelle

Bankruptcy is at an all-time high in America. Many people have filed for bankruptcy because they feel they don’t have any other options. If you are considering bankruptcy, look at these items and see if you have done them first.

1. Prioritize: If you are feeling overwhelmed with bills, start prioritizing and worrying about the ones you can pay for and work from there. Things that are important are things, such as house payments and car payments. Things that shouldn’t take precedent, even if the creditors are hounding you, are things like credit card bills. Worry about getting the essentials paid for first and if you have money left over, start working on the others.
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Who Can I Trust With My IRS Tax Problems?

Posted on March 29, 2012 by Marty Martelle

In watching the news, we have seen that Ronnie Deutsch had been charged criminally, Tax Masters Has filed Bankruptcy and other firms that promise IRS Offer in Compromise settlements for “Pennies on the Dollar” have been investigated by Regulatory Agencies.

These firms promise the world and often don’t deliver.  We have heard many stories of clients who have paid these companies thousands of dollars and at the end were in worse shape than before they hired these companies.

How can Taxpayers protect themselves from these OIC scams, then?

First, check out the Better Business website.  Reputable companies will have outstanding ratings with the BBB.  They will not have scads of complaints.

Second, check for references.  Often, websites will have testimonials that will give you a good indication of their integrity.

Third, beware of outlandish promises.  Offers in Compromise are just not given out freely by the IRS.  They will require that you prove that you do not have the ability to pay the taxes.  They will require  significant financial documentation.

Finally, beware of firms that are more interested in getting fees from you than solving your IRS Tax Problems.

Our firm prides ourselves on giving honest and candid advice.  We often have to tell people that they simply don’t qualify for an Offer in Compromise.  There are often other solutions to their problems, such as: non collectible status, installment agreements, bankruptcy and others.

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Trust Fund Recovery Penalty

Posted on March 20, 2012 by Marty Martelle

Trust Fund Recovery Penalty

Employers have a responsibility to withhold income from their employees’ earnings and deposit those withholdings and employment tax with the Internal Revenue Service.  These taxes are called trust fund taxes because you actually hold the employee’s money in trust until you make a federal tax deposit in that amount.  To encourage prompt payment of these trust fund taxes, Congress has passed a law that allows for certain individuals to be personally penalized for the failure of to properly withhold and deposit these taxes.  This penalty is called a Trust Fund Recovery Penalty.

What is the Trust Fund Recovery Penalty?

The Trust Fund Recovery Penalty is a penalty in the amount equal to the unpaid balance of the trust fund tax.  It essentially authorizes the Internal Revenue Service to penalize an individual personally for the failure of the business to pay the taxes.

Who Can Be Responsible for the Trust Fund Recovery Penalty?

The Internal Revenue Code authorizes the assessment of the Trust Fund Recovery Penalty against any person who: (1) is responsible for collecting or paying withheld income and employment taxes, and (2) willfully fails to collect or pay them.

A responsible person is a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes.  The Internal Revenue Service generally looks to the owners of the business, and those with authority and control over the funds of the company.

For willfulness to exist, the responsible party: (1) must have been, or should have been, aware of the outstanding taxes, and (2) either intentionally disregarded the law or was plainly indifferent to its requirements.

The Internal Revenue Service will typically investigate irregularities with employment tax payments and informational returns, such as the Form 940 & Form 941.  When a business has problems with employment tax liabilities, all owners, directors, and some employees have a significant reason to be concerned about a potential assessment of the Trust Fund Recovery Penalty.

What To Do?

Once the Trust Fund Recovery Penalty is assessed, the Internal Revenue Service can take collection action against personal assets. If you are contacted by the Internal Revenue Service, you need to seek the immediate advice of an experienced tax attorney.  The most important time to resolve a potential Trust Fund Recover Penalty is before the penalties are assessed against you personally.  The Internal Revenue Service needs to be contacted by your counsel in order to protect your rights against the Trust Fund Recovery Penalty.  If the Trust Fund Recovery Penalty is assessed to you already, you still have many options in order to resolve the assessment of the penalties.  At Martelle, Bratton, and Associates, P.A., we offer potential clients the opportunity for a no-obligation consolation.  We represent clients throughout the United States with Internal Revenue Service matters.

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“Can I settle my taxes for Pennies on the Dollar?”

Posted on March 20, 2012 by Marty Martelle

As a Tax Attorney, this is one of the most common questions I hear.  The next most common question is “if I pay just the tax can I avoid the penalties and interest?”

Generally speaking, the IRS will not settle for less than the full amount owed, except in an Offer in Compromise or OIC.  The IRS will settle for what they believe the reasonable collection potential is.  Simply put, this means they want an amount equal to the quick sale value of the equity in assets, plus, the amount they believe that they could collect over the next 4-5 years.

In order to settle with the IRS in an Offer in Compromise they must be convinced by your attorney that is more than they will receive if they don’t accept the OIC.

There are many firms that will make claims that they cannot meet, promising to settle your IRS debt for a very small portion of what you owe.  Many of these firms promise a settlement, then take your money and they should know that they can’t make an Offer in Compromise work.

In our office we do a careful analysis to see if our clients will qualify for an OIC.  Some people do, but many don’t.  We pride ourselves on giving honest advice to our clients and not putting people in Offers that have no chance of success.

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What You Should Know Regarding Retaining An IRS Tax Attorney?

Posted on July 17, 2011 by Marty Martelle

The IRS announced in 2011 that it would ease rules on tax liens, so as to ease some of the financial burden of taxpayers. This may make the IRS sound kinder and gentler, but taxpayers should not forget that the IRS has a duty to enforce tax payments. A taxpayer having a hard time paying the tases might improve their chances of settling the debt if they first contact an IRS tax attorney.
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