How much do you need to offer to the IRS to have an OIC accepted? What are the criteria for determining whether an Offer in Compromise is acceptable to the Internal Revenue Service?
The IRS wants basically two things in order to accept an Offer based on Doubt as to Collectability.
First, they want as much as they could get if all of the taxpayer’s non-exempt assets were liquidated.
Second, they want as much as they believe they could get from the taxpayer’s earnings for the next 4 to 5 years, depending on how the offer is structured.
In part one of the test, the asset value of the taxpayer must be determined. If the taxpayer has a home, the quick sale value must be determined. This is usually 80% of the actual value. Then the liens against the property are deducted. If there is equity, then the amount of the equity is the starting point in determining how much it will take to fund the Offer in Compromise.
Each asset is then valued and a determination of how much equity there is in each asset is made. The value of the equity is added on to the amount of the Offer.
There are certain exemptions from this rule. First, household furnishings, furniture and personal belongings are exempt up to a particular amount. The same for tools of trade, the items that are needed to generate income.
Once a determination is made as to how much equity value there is in assets, then a determination is made as to how much excess income there is from earnings. This will be covered in part 3 of this series.
A caution: This information is provided solely for a general understanding of the principles concerning Offers in Compromise. It is not intended for any specific situations. Please consult a Tax Attorney and do not rely on these articles. You really need a competent Tax Attorney if you are going to do an Offer in Compromise.
We have simplified how an OIC works for purposes of this article. Offers in Compromise are very, very complicated and if not done very carefully, will almost certainly result in a rejection. A tax attorney is highly recommended to handle an OIC. For more information about Offers, visit our website: www.martellelaw.org/offer-in-compromise
Offers in Compromise Part 2
There are advertisements splashed all over the Television and the internet claiming to be able to settle taxes for pennies on the dollar. If you get a tax lien issued against you, you will get letters from outfits all over the country offering to settle your taxes for a small fraction of what you owe. Are these claims true? Can these organizations actually settle my taxes for a very small percentage of what I owe?
LET THE BUYER BEWARE!
The only way to settle tax liability for a fraction of what is owed, with certain exceptions, is through an Offer in Compromise. And no one can tell you whether you qualify for an OIC without obtaining detailed information from you.
Before you agree to have anyone represent you, you should do some research to determine whether they are for real, whether they have complaints against them and whether they have an A+ rating with the Better Business Bureau. A simple Google search for: “complaints against ABC Tax Resolution” (substitute the name of anyone you are considering hiring) and a Better Business Bureau search will quickly show you whether a firm is reputable or not.
For more information and links to the complaints against some of the more aggressive marketing firms that make promises that they often can’t keep, visit: http://www.martellelaw.org/offer-in-compromise
The short answer is that the IRS wants two things to settle an Offer. First, they want an amount equal to the value of your assets, after deducting liens against them. Second, they want as much as they believe they could get from your earnings for the next 4-5 years, after deducting what they consider normal living expenses. Without seeing a detailed statement of your particular budget, there is no way anyone can tell you whether you qualify for an Offer in Compromise. Beware.
At our website, we have much detailed information about resolving tax problems. Please feel free to visit our site located at: www.martellelaw.com
The Internal Revenue Service has recently relaxed the standards for their acceptance of Offers in Compromise. This easing of the requirements will result in many more OIC’s being filed and accepted.
The purpose of this series of articles is to explain how Offers work and what the criteria are for having an offer successfully handled.
First, what is an Offer in Compromise?
An Offer in Compromise is an agreement between taxpayer(s), either personal or business and the IRS, where the taxpayer is able to settle their total tax liability for less than they owe. If an OIC is accepted by the Internal Revenue Service then the person or businesses tax liability is settled and once they pay the agreed on amount, they have no further obligation to pay those taxes. Note that there are conditions that the taxpayer must meet, which will be discussed in future articles.
There are three types of Offers:
First, Doubt as to Collectibility: In this type of Offer the taxpayer simply doesn’t have the ability to make payments sufficient to pay off the tax liability within 4-5 years. Therefore it is doubtful that the Internal Revenue Service will be able to collect the amount due, because of financial hardship of the taxpayer.
Second, Doubt as to Liability: If the taxpayer has a legitimate dispute as to whether the tax is actually owed, they may be able to settle the liability with the IRS for a portion of what the IRS claims due. The dispute must be valid and not frivolous, however.
Third, Effective Tax Administration: If the taxpayer has the ability to pay, but it would work a great hardship to the taxpayer and would generally be unfair to make them pay, this type of offer may be filed. An example of this type of offer is where a retired person owns their home and has equity and therefore could pay if they sold the home, but they are living on a very limited income, this type of offer might be accepted.
The next several articles in this series will explain much more about OIC’s and how they work.
We have simplified how an OIC works for purposes of this article. Offers in Compromise are very, very complicated and if not done very carefully, will almost certainly result in a rejection. A tax attorney is highly recommended to handle an OIC. For more information about Offers, visit our website: www.martellelaw.org/offer-in-compromise
A recent announcement by the IRS Commissioner Doug Shulman states that the Internal Revenue Service will be relaxing the guidelines for the acceptance of Offers in Compromise.
While there are no definitive statements as to how the relaxed rules will work or how they are being relaxed, tax professionals welcome the relaxing of the criteria for acceptance of OIC’s.
Until recently, it was difficult for taxpayers to qualify for Offers in Compromise. The rules for acceptance were very rigid and had little flexibility. Now, the relaxing of the rules will make it easier for people to qualify for Offers.
Two things are certain from the announcement:
First, the IRS will accept more evidence regarding the value of real estate. This has been an ongoing problem, in that it is no secret to anyone that real estate values have fallen dramatically.
Second, rather than looking at historic earning information to determine ability to pay, the IRS will now consider information about what the taxpayer is currently earning and evidence about what the taxpayer will earn in the future. This will relax the standards for acceptance of Offers, dramatically.
For more information about Offers in Compromise, please visit our website at:
http://www.martellelaw.org/offer-in-compromise/
To ask specific questions and have an attorney respond, click here:
http://www.martellelaw.org/contact-us/
About the author:
Martin Martelle is a Tax Attorney, who represents clients throughout the United States with Tax Problems.
There are three general types of Installment Agreements that the IRS will accept, depending on circumstances. They are:
STREAMLINED INSTALLMENT AGREEMENT: If the taxpayer owes less than $25,000, an installment agreement is not as difficult to obtain. The IRS has a streamlined procedure where the taxpayer can enter into an Installment Agreement and pay the past due taxes in no more than 5 years, depending on how much their income is.
FULL PAY INSTALLMENT AGREEMENT: If the person owes over $25,000, but is able to pay the obligation in full within 5 years, they may be able to qualify for an Installment Agreement. In this circumstance, they must provide very detailed financial information, together with proof of necessary living expenses. The IRS will only allow them a relatively modest amount for living expenses. These expenses are set by National Standards. The IRS will expect that the taxpayer live very frugally and pay all of what they consider to be excess income towards the tax liability.
PARTIAL PAY INSTALLMENT AGREEMENT (PPIA): If the taxpayer simply doesn’t have enough excess income to pay the tax liability within 5 years, then they may qualify for a PPIA. This is the most difficult Installment Agreement to obtain. The IRS grants these Installment Agreements with reluctance. They are probably not going to be paid in full and as such, they will scrutinize the taxpayers and their finances very carefully. However, if a person really can’t afford to make significant payments to the IRS, then they may qualify to pay only a small portion of the amount of the taxes that they owe.
In order to obtain the very best Installment Agreement possible a person should have the help of a qualified Tax Attorney to assist them in preparation of their Installment Agreement. For more information about Installment Agreements, please visit our website at:
http://www.martellelaw.org/irs-installment-agreement/
